When Gifting may be a concern

Tax advisers often encounter clients who claim to have gifted to a trust. Sometimes this can be a concern

eg
Company A or person A has lend/advanced or otherwise reports an asset of money owning by a trust. The adviser is told - That was gifted during the year. Nothing is now owing.

Its a debt forgiveness. That may fall under CGT rules. A right or entitlement is a CGT asset. CGT assets dont need to be an investment. A entitlement to be repaid a loan is a asset and may be a CGT right. When the debt is forgiven at the moment of gifting a CGT event is triggered.

This is different to person A who may have cash and then bank this to the trust and describe the sum as a gift. But it may be impossible for a company trust or entity to gift without some tax impact. Likewise transfer of investments owned by a person or entity into a trust is a CGT event too and the market value substitution rule is used.

eg Fred owns shares bin XYZ Learning Ltd. He transfers these off market to the trust for $1. The traded value on that day is $10,000. Fred acquired the shares 4 years ago for $1,000. Fred's gift triggers a CGT event and a discounted gain of $4500 would occur. Fred is alarmed to hear this and suggests unwinding the transfer by transferring the shares back just 6 months after the first transfer. However today the shares are worth $11,000. So the trust would also incur a further second CGT event and a non-discount gain of $1k could occur. The earlier transfer cant be unwound. The CGT event occurred.

In SMSFs a strategy of using these principles can be used to great effect:
- Inspecie transfer of personal investments subject to s66 (ie market listed shares etc)
- Inspecie transfer of property under small business CGT or other methods which may be concessional or non-concessional contributions and also eligible for stamp duty concessions

A partial spouse transfer of real property may also be a strategy in NSW and to a lesser degree Vic.