The views in TR 2018/6 are not materially different to those expressed in the draft ruling.
In summary, TR 2018/6 confirms the following views previously in draft:
prior to a trust’s vesting, it may be possible for the trustee or a court to postpone the vesting of the trust by nominating a later vesting date if the trustee has powers to do so. Further, TR 2018/6 implies via example 3 that an extension of the vesting date must not breach the rule against perpetuities. For most States, excluding South Australia, this means a period not exceeding 80 years.
Once a vesting date has passed, the trust has vested, and it is no longer possible for a trustee to change the vesting date. The interests in the trust property become fixed at law once vesting occurs.
Trust vesting itself does not ordinarily cause CGT event E1 (creation of a new trust) to happen to the trust.
The vesting of a trust may result in the takers on vesting becoming absolutely entitled as against the trustee to the CGT assets of the trust, but this depends on the particular interests of the takers on vesting.
The allocation of income pre and post-vesting of the trust needs to be allocated and recorded correctly. The Commissioner will accept a fair and reasonable allocation of the income in this regard.
In addition to the views in TR 2017/D10, TR 2018/6 states that:
the legal or equitable rights of parties that have been fixed upon the vesting of the trust cannot be altered or avoided by parties continuing to carry on activities of the trust by purporting to exercise a variation to the vesting deed after the vesting date has already passed, or by implying ignorance of the vesting date.
CGT event E1 does not happen by amending the vesting date through the valid exercise of a power in a trust deed or on approval of a relevant court.
In relation to absolute entitlement, example 6 implies that where there is a single taker on vesting, then CGT event E5 (beneficiary becomes absolutely entitled to a trust asset(s)) would happen.
TR 2018/6 makes a passing comment on CGT event E7 (disposal to a beneficiary to end a capital interest). The Commissioner’s views are that post-vesting, CGT event E7 may happen but not if CGT event E5 has already occurred. In light of the Commissioner’s view in TR 2007/D25, when a beneficiary becomes absolutely entitled causing CGT event E5 to happen (which is still in draft after more than a decade), TR 2018/6 has simplified examples 6 and 7 (from those in TR 2017/D10) to a single taker on vesting and removed references to TR 2007/D25.
Trustees and advisers need to be aware of the vesting date before it passes. Based upon the Commissioner’s views in TR 2018/6, various CGT events may occur if proper planning is not undertaken.
Ahead of the vesting date the trustee can consider extending the vesting date (subject to the rule against perpetuities) and exercise its discretion to appoint income of the trust derived before the vesting date among the beneficiaries. By contrast, after the vesting date the takers on vesting hold the present entitlement to the income of the trust estate derived post-vesting.
We recommend that planning for the vesting of a trust begin several years prior to the vesting date and suitable advice obtained as part of that planning process.
Sladen Legal is highly experienced in reviewing and advising in relation to trust deeds including planning for and the consequences of vesting.
To discuss this further or for more information please contact:
Special Counsel | Accredited specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia