HDT and the 50% CGT concession?

[DavidMc]

I've been reading an article on Trusts by Kevin Munro. It's called 'Trusts in Structuring'. On page 27 he lists one of the disadvantages of a HDT being that 'Capital gain will be made by the trust. Accordingly, ... will not be entitled to the 50% discounted capital gains tax concession'.

Is this the case? I thought that upon sale, the capital gain can be distributed to the beneficiaries who, as individuals, would be able to receive the 50% CGT concession.

[GreatPig]

I'm not sure what Greg Vale (the author) means there either.

According to subdivision 115-C of the tax act (http://law.ato.gov.au/atolaw/view.htm?dbwidetocone=09%3APLR%3ATaxation%3AINCOME%20TAX%20ASSESSMENT%20ACT%201997%3ACHAPTER%203%20-%20SPECIALIST%20LIABILITY%20RULES%3APART%203-1%20-%20CAPITAL%20GAINS%20AND%20LOSSES%26c%20GENERAL%20TOPICS%3ADivision%20115%20-%20Discount%20capital%20gains%20and%20trusts'%20net%20capital%20gains%3ASubdivision%20115-C%20-%20Rules%20about%20trusts%20with%20net%20capital%20gains%3AOperative%20provisions%3A%2300002%23SECTI ON%20115-215%20Assessing%20presently%20entitled%20beneficiaries%3B):

115-215(1)

The purpose of this section is to ensure that appropriate amounts of the trust estate's net income attributable to the trust estate's *capital gains are treated as a beneficiary's capital gains when assessing the beneficiary, so:

(a) the beneficiary can apply *capital losses against gains; and

(b) the beneficiary can apply the appropriate *discount percentage (if any) to gains.
This is only the introduction of course, and there's more in subdivision 115-A about what is and isn't a discounted capital gain, but everything I can see there seems to indicate that the 50% discount can be passed out of the trust.

And for that date Greg mentions of 23rd December 1999 (the bit you left out), I'm not sure where that comes from either. Most stuff talking about discounted capital gains uses 21st September 1999. He also says earlier, on page 24 talking about structures in general (ie. not HDT's specifically):


3. If capital gains tax issues are the major concern then a trust may not be appropriate for assets acquired after 23 December 1999 because:

(a) trusts will not be entitled to the 50% discounted capital gains tax concession;

So I'd be interested to know what he means by that statement too. In the intro though he says he's considering the proposed changes to the taxation of trusts as outlined in the Ralph Report - the taxation of trusts as companies, which never happened, so maybe it's just out-of-date information.

Cheers,
GP

[coastymike]

GreatPig,

You are correct. Greg was discussing the impact of entity taxation, from the Ralph Review, and the impact it would have had on trusts. This did not go through and so the 50% CGT discount is still available to trusts and flows through to the beneficiaries.