Trusts avoiding CGT alert
Liz Gibbs • January 8, 2020

An alert has been issued over arrangements where trustees of unit trusts disposes CGT assets to an arm's length purchaser with no CGT consequences by exploiting restructure rollovers. Whilst there may be many variations of such arrangements, the overall effect is that rather than selling the relevant asset and incurring a large capital gain on which tax needs to be paid, the transferring trust is able avoid tax. The ATO notes it is actively reviewing such arrangements and that the anti-avoidance provisions may apply.

The Tax Office has recently issued an alert on its concerns over trusts avoiding CGT by exploiting restructure rollovers. Specifically, it is actively reviewing arrangements that supposedly allow a unit trust to dispose a CGT asset to an arm's length purchaser with no CGT consequences.

As a result, both taxpayers and advisors who enter into these arrangements will be subject to increased scrutiny.

The arrangement consists of a trustee of a unit trust (transferring trust) selling a CGT asset with a large unrealised capital gain to an arm's length purchaser for an agreed price in the following way:

  1. transferring the asset to a trustee of a new trust (receiving trust) for the purchase price, which gives rise to a debt owing to the transferring trust;
  2. choosing rollover under Subdivision 126-G in relation to the transfer;
  3. the purchaser then subscribes to new units in the receiving trust equal in value to the purchase price; and
  4. the receiving trust subsequently repays the debt to the transferring trust with the funds received from the issue of the new units.

According to the ATO, the steps may be implemented in close succession or structured in stages as a part of a broad scheme. Whilst there may be many variations of such arrangements, the overall effect is that rather than selling the relevant asset and incurring a large capital gain on which tax needs to be paid, the transferring trust is able to transfer the underlying ownership to the purchaser and avoid the capital gain using the rollover provisions.

The specific aspects of the arrangements that concern the ATO include:

  • whether conditions for Subdivision 126-G rollover relief are met in respect of the arrangement;
  • the arrangement appears to be designed primarily to allow the transferring trust to exploit Subdivision 126-G rollover to disregards a capital gain that would otherwise be assessable to the trustee or beneficiaries of the trust;
  • the arrangement results in a change in the underlying ownership of the relevant asset without triggering a CGT taxing point, which is contrary to the intention of the Subdivision 126-G rollover;
  • the parties have entered into this arrangement in circumstances where a direct sale of the relevant asset by the transferring trust to the purchaser would have been simple, viable and commercially expected;
  • the commercial substance of the arrangement is a sale of the asset by a transferring trust to the purchaser, and the complex arrangement can only be explained by the tax advantage obtained by the transferring trust; and
  • the transferring trust receives (and the purchaser pays) the same total sum under the arrangement as if the asset were sold directly.

In light of the concerns, the ATO considers that Pt IVA anti-avoidance provisions may apply to these arrangements where they would otherwise qualify for rollover relief under Subdivision 126-G. While only a small number of cases have been detected so far, the ATO noted at least one case involved the sale of real property of several hundred million dollars.

Do you know your trust?

Trusts, whether they be unit, discretionary or family trusts, can consist of complex arrangements with each specific trust subject to particular rules. If you're a part of a trust, whether it be in the role of trustee or beneficiary, we can help you understand and implement strategies which won't catch the ATO's attention. Contact us today.

Email us at Robert Goodman Accountants at 
.  © Copyright 2020
 
Thomson Reuters. All rights reserved.
 
Brought to you by Robert Goodman Accountants. 
Superannuation Guarantee
By Liz Gibbs April 17, 2025
The superannuation guarantee rules are broad and, in some circumstances, extend beyond the definition of common law employees to some directors, contractors, entertainers, sports persons and other workers.
time management
By Liz Gibbs April 15, 2025
If your to-do list is starting to look more like a novel than a plan for the day, you’re not alone. It’s all too easy to get bogged down by endless tasks, unsure where to start or what really deserves your attention. That’s where the “Must, Should, Could” method comes in—a brilliantly simple way to cut through the clutter and focus on what truly matters.
Solid Business Foundations
By Liz Gibbs April 11, 2025
When it comes to improving your business, think of it like building a house. You wouldn’t add a second floor without ensuring the foundation is rock-solid, right? The same goes for your business.
Personal tax cut
By Liz Gibbs April 10, 2025
On the last sitting day of Parliament, the personal income tax rate reduction announced in the 2025-26 Federal Budget was confirmed.
How does FBT work
By Liz Gibbs March 31, 2025
An overview of FBT. Find out how FBT applies, what you need to do as an employer, and what deductions you can claim.
Odometer readings
By Liz Gibbs March 30, 2025
The Australian Fringe Benefits Tax (FBT) year runs from 1 April to 31 March, and one of the key compliance requirements for employers providing motor vehicles to employees is recording odometer readings on 31 March each year. These readings help determine the taxable value of car fringe benefits and ensure accurate FBT calculations.
Monthly GST Reporting for Small Businesses
By Liz Gibbs March 25, 2025
From 1 April 2025, the ATO will be moving around 3,500 small businesses from quarterly to monthly GST reporting where they have a history of: ❌ non-payment; ❌ late or non-lodgment; or ❌ incorrect reporting. Once the change is implemented, it will remain in place for a minimum of 12 months. Affected small businesses and their tax agents will be contacted by the ATO when their GST reporting cycle is changed. A review process is available for those who don’t believe they have a history of poor compliance and should be able to remain on their current GST reporting cycle. The ATO believes that this will help small businesses improve compliance with their GST obligations and build good business habits. Do you think this is a good move?
Budget 2025-26:
By Liz Gibbs March 25, 2025
In Part 3 of our analysis, we look at the impact on Business & employers, Government & Regulators, and The Economy.
Budget 2025-26:
By Liz Gibbs March 25, 2025
Budget 2025-26 is one that the government clearly did not expect to have to deliver. In Part 2 of our analysis, we look at the impact on Individuals and families.
2025-26 Federal Budget
By Liz Gibbs March 25, 2025
Part 1 of our Budget special: The Government’s big moment in the 2025-26 Federal Budget was the personal income tax cuts. Income tax cuts are a dazzling headline but in reality they deliver a tax saving of up to $268 in the 2026-27 year, with a tax saving of up to $536 from the 2027-28 year.
More Posts