No CGT when selling?

Please see below an excerpt from Dale GG's "Trust Magic" book which I bought yesterday (p198-200 of the PDF for those who have it):

However, a Trust may be closed or vested (as the lawyers and accountants would say) any time before the end of the 80 year period by a choice made by the Trustee of the Trust. This may be done by a simple minute.

However, most Trustees would simply transfer the assets ?in specie? (which means, ?as is?) to the beneficiaries of the Trust via a carefully worded minute of a meeting as doing so will generally mean that the transfer will be exempt from both Stamp Duty and Capital Gains Tax (CGT).

By the way, the good news is that when a beneficiary of the Trust receives the property or parcel of shares without having to pay for them as a result of this ?in specie? distribution they are deemed, by tax law, to have received them with a cost base for CGT purposes equivalent to the market value of that property, or, that parcel of shares, at the time of the transfer.

So based on this, it seems as though the following scenario could happen:
- Smith Family Trust buys IP $200k
- 30 years later, John Smith as trustee decides that the Trust is to be vested and John Smith as beneficiary is to receive the property "in specie"
- John Smith receives IP which is now worth $800k. No CGT or SD. Cost base for CGT is $800k
- John Smith sells property for $800k
- No CGT payable

Opinions? Have I missed something?

John
 
Please see below an excerpt from Dale GG's "Trust Magic" book which I bought yesterday (p198-200 of the PDF for those who have it):







So based on this, it seems as though the following scenario could happen:
- Smith Family Trust buys IP $200k
- 30 years later, John Smith as trustee decides that the Trust is to be vested and John Smith as beneficiary is to receive the property "in specie"
- John Smith receives IP which is now worth $800k. No CGT or SD. Cost base for CGT is $800k
- John Smith sells property for $800k
- No CGT payable

Opinions? Have I missed something?

John

Yes, you have missed both stamp duty and CGT. I think the quote is incorrect.

Stamp duty would apply in most states (maybe not in VIC), but CGT would also probably apply - but I am no tax expert so may be wrong. CGT event A1 I think would apply.

You may recall reading about the trust controlled by Gina Reinhart in the news. The vesting date of this trust was relatively short - I think it was 25 years. The court disputes were over extending the vesting date as upon vesting the children got at the assets. Her argument was that the CGT payable would 'bankrupt' the children.

Also a vesting date can only be brought forward if the deed permits, or upon court approval. Capital is often marked to go to 'capital beneficiaries' as well. These beneficiaries may be different to the income beneficiaries.
 
Sounds like beneficiary becoming absolutely entitled to an asset of a testamentary trust.

If that is the case then the only snag is that the settlor has to die first !
 
Trust magic is an old book. Dale retired before it was re-written around three years ago. I'm always concerned when a person writes in a professional expert capacity about legal structures and isnt a practicing lawyer etc. Often the concern gets broader when a book is involved because it assumes that all the knowledge is contained within the two covers. But its not possible. Jacobs is a much bigger read. A novice reader can make an incorrect assumption believing it to be the "rules" when much exists outside the book that may also need to be considered. eg Tax Ruling TR 2009/17 and others. The book certainly provides a one dimensional view of a part of tax, trust and other technical areas of professional guidance.

I'm not suggesting TM is outdated etc... Actually its quite good. Just take it as preliminary info and research then seek advice.

A CGT event is triggered when a beneficiary is made absolutley entitled to a trust asset. eg CGT event E5. That can trigger duty...And CGT of course. I have seen people try to fiddle with things too - triggering two CGT events. Two duties too. OSR dont care.

PS : there can be ways to end a trust that dont involve vesting :)
 
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