Issue
Will the exception in paragraph 104-60(5)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the transfer of assets from a discretionary trust to another discretionary trust?
Decision
Yes. The beneficiaries and terms of the trusts are the same. Therefore, the exception in paragraph 104-60(5)(b) of the ITAA 1997 will apply.
Facts
A proportion of the assets of a discretionary trust (the original trust) will be transferred to another discretionary trust (the new trust) which is yet to be established.
The consideration for the transfer will be the transfer of beneficiaries' debt.
The trustee, appointor, and establishment date for the new trust will be different to the original trust.
In all other respects, the trust deed for the new trust, including the vesting date, will be identical to the deed for the original trust.
Both trusts will be governed by the same State laws.
Reasons for Decision
CGT event E2 happens when a CGT asset is transferred to an existing trust (subsection 104-60(1) of the ITAA 1997). The event happens when the asset is transferred (subsection 104-60(2) of the ITAA 1997). Therefore, CGT event E2 will happen when the original trust transfers a proportion of its assets to the new trust, unless the exception in paragraph 104-60(5)(b) of the ITAA 1997 applies.
The exception in paragraph 104-60(5)(b) of the ITAA 1997 applies if an asset is transferred to a trust from another trust and the beneficiaries and terms of both trusts are the same. For this exception to apply the beneficiaries and terms of the original trust and the new trust would have to be the same.
The beneficiaries of the original trust will be the only beneficiaries of the new trust. The interests held by those beneficiaries in the transferred assets, which will become the trust property of the new trust, will be the same as the interests they have currently under the original trust. The vesting date for the new trust will be the same as the vesting date for the original trust. The fact the trust deeds will otherwise be identical means that the powers and discretions of the trustee for the new trust will be identical to those of the trustee of the original trust. Also, because both trusts will be governed by the same State laws, powers granted to the trustees by relevant State trust legislation will be the same.
Even though the new trust has a different trustee, appointor and establishment date, the terms upon which the trustee of the new trust will hold the relevant property are the same.
As the beneficiaries and terms of the original trust and the new trust will be the same, the exception in paragraph 104-60(5)(b) of the ITAA 1997 will apply to the transfer of assets between the trusts. Therefore, CGT event E2 will not happen when the assets are transferred from the original trust to the new trust.