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Discretionary Trusts and CGT, Change in ATO Approach?

June 2003

There have been major concerns caused by ATO Interpretative Decision 2002/921 (issued 02/08/02), which denied a Small Business CGT concession to a discretionary trust operating a small business where a charity was an eligible beneficiary of the trust. It was stated that the $5 million cap on the net asset value for a small business to be eligible for the CGT small business concessions, was exceeded because the ATO deemed the charity’s assets to be included in the $5 million calculation by arguing the charity was an "associate" of the trustee.

It was recently reported in TAXVINE (Tax Institute of Australia weekly publication) that in an open forum of the Tax Institute’s QLD State Convention, the issue was raised by a member of the TIA and in a response by Federal Second Tax Commissioner, Michael D'Ascenzo, the gist of his comments were as follows:

1. even if the charity is a "taker in default", it will not be a controller if "just before the CGT event" there is an appointment of another discretionary object that can take;
2. such an appointment, if within the appointment power, would not necessarily be a resettlement for income tax purposes (although the State stamp duty implications will need to be considered by any trustee in such a situation); and
3. in addition, the exclusion of a charitable object that has never received a distribution is unlikely to be a "scheme" that attracts Part IVA.

Baldwins is involved in all aspects of business law and trust tax law, and superannuation law and estate planning.

For further information, contact Joe Lederman at BALDWINS, Australian Lawyers & Consultants.

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