Unit trust - redemption & issue of new units

How does it exactly work with a redemption & issue of new units in a unit trust & what are the tax implications/consequences? Say a property is held in a unit trust, purchased a few years ago at $500k, value is now $1mil.

 

Depends on state law. CGT issues are governed by tax law.
All part of advice regarding use of a trust. One of the reasons why a unit trust NOT own two properties too
Legal advice may be aessential issue too. Issue units to the wrong unitholder and the trust may end

 

Why not just transfer the units?

 

Transfer of units is a CGT event and also potentially dutiable if the state taxes a indirect transfer OR land rich provisions operate. Redemption will be a CGT issue. The key factor is usually duty. Also timing can influence when the CGT event is measured since a contract sale (Event A1) doesnt occur.

Generally redemption and reissue is used to avoid a"transfer" which attracts duty. QLDhas a indirect duty rule which would fail. It is also a strategy where a SMSF may be involved to avoid s66 SISA.

The valuation of units can be messed up and care must be taken to avoid a tax mistake.

 

No duty in NSW unless Landrich

 

And I would have thought redemption would be a cgt event as changes beneficial ownership

 

So in NSW it doesn't make any difference if you just transfer the units or redeem and reissue the units (execpt as a SMSF strategy) as either way the same CGT amount is liable and duty won't apply (not Landrich).

 

There are differences but not with stamp duty because there would be none on either.