Tuesday, 11 November 2008

Government abolishes trust tax cloning concession

The Assistant Treasurer, Chris Bowen MP, announced on 31 October that the Government will remove the capital gains tax (CGT) trust cloning exception to CGT events E1 and E2.
Removing the trust cloning exception is consistent with the policy principle of taxing capital gains that arise where there is a change in ownership of an asset as typically occurs on the creation of a trust over a CGT asset (event E1) and on transferring a CGT asset to an existing trust (event E2).
The other current exception to CGT events E1 and E2, where the taxpayer is the sole beneficiary of the relevant trust that is not a unit trust and the taxpayer is absolutely entitled to the asset as against the trustee, will be retained.

A mere change of trustee of a single trust will continue not to trigger a CGT taxing point.
The amendments will resolve uncertainty surrounding the application of the exception, which has created significant compliance and administrative costs for taxpayers and the Tax Office.
The amendments will also remove the possibility of using the trust cloning exception to eliminate tax liabilities on accrued capital gains which will help ensure equity and the integrity of the tax system.

Legislation giving effect to this measure will be introduced as soon as practicable.
Initial consultation will be undertaken on the design of these amendments; details will be released shortly on the Treasury website.

An exposure draft of the legislation will be released for consultation on the Treasury website after consulting on the design of these amendments.
The amendments will apply to CGT events happening from 1 November 2008.

Source: Ministerial Media Release

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