Transferred shares from personal name to trust - CGT

I transferred some shares from my personal name to my family trust. For the declared value, I put in my purchase price, say $50 per share, instead of the spot price at the transfer date, say $60 per share. Is this allowed? If not, are there any modifications to this process wherein it would be made allowable?

 

No.

The market value on the date of the transfer is generally the correct price. This applies for CGT purposes even if another price is chosen. You cannot transfer shares at cost so that it avoids a gain / loss. What you have demonstrated is dealing with each other on non-arms length terms.

The market value substitution rule will prevail over the cost basis when such a dealing occurs (and why the rule exists)

Capital proceeds

You could now have a double tax issue. You have a deemed gain and the trust has acquired at a low cost (lower than market value). Needs to be fixed

 

Its allowed, but is it wise?

Think clawback laws and tax.

 

Yes the legal implications could also be a clawback issue. I have seen people gradually move assets to a trust and it just invites the family court to consider the issue as matrimonial property is now part of the trust. And if no actual proceeds are paid then a trust liability to pay the former owner would be a personal asset. So a trustee in bankruptcy may demand the trust to pay the liability.

 

might be better to gift them in. legal advice required

market value substitution will apply.

 

It is best to sell the shares and then have the trustee rebuy them

This will result in no difference in tax, but give greater asset protection on bankruptcy because the cash might be clawed back, but not the shares - which could have increased in value.

 

If the shares are in a private company that operates a small business you can potentially sell them to a trust and not create a cgt event.

This is referred to as the small business restructure exemption.

 

sadly no, listed security

thanks all for the suggestions