Amendment of Trust Deeds Triggers Unnecessary CGT and Stamp Duty

Do you know that amending a trust deed other than a superannuation trust deed has significant capital gains tax and stamp duty implications where the amendment changes the relationship between the trustee and the beneficiaries?

This is because it may comprise a re-settlement of the trust, whereby the old trust ends and a new trust commences in its place. If this happens all the assets of the old trust are transferred to the new trust at market value, and this transfer:

(i) is a disposal for capital gains tax purposes, whereby any increase in value of the assets owned by the trust, including goodwill of service entities, will lead to an unnecessary capital gains tax charge; and

(ii) where the trust owns real estate triggers an unnecessary stamp duty liability based on the market value of the real estate.

There have not been any changes to the tax law or to the trust law that require family trust deeds, unit trust deeds or hybrid trust deeds to be amended. And even if there were such a change, it’s hard to imagine changes that justify incurring unnecessary stamp duty or capital gains tax.

The Australian Taxation Office and the various state revenue offices take a hard line view of what comprises a re-settlement and therefore most amending deeds end up costing the trustees a lot of money in unnecessary capital gains tax and/or stamp duty. In one recent client case proceeding with a suggested change would have cost the client more than $100,000 of tax and stamp duty. And its not deductible, so it hurts nearly twice as much as other unnecessary business costs.

Want to learn more?

Brett Davies has produced an excellent summary of the issues and it can be downloaded at: http://www.taxlawyers.com.au/Publications/New/Trustacc2.htm

And the ATOs’ 1999 Statement of Principles can be downloaded here:

http://www.ato.gov.au/content/downloads/SPFINAL.pdf

Need specific advice?

Please do not hesitate to contact me should you need specific legal advice concerning the likely CGT or stamp duty implications of any proposed trust deed amendments.