ATO Targets Certain Trust Arrangements
The Australian Taxation Office (ATO) is scrutinizing specific arrangements that claim to enable a unit trust to sell a capital gains tax (CGT) asset to an independent buyer without CGT consequences, utilizing Subdivision 126-G rollover for trust restructures.
In these arrangements:
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Asset Transfer: The trustee of a unit trust (the 'Transferring Trust') sells a CGT asset with significant unrealized capital gains to an independent buyer for an agreed price.
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Subdivision 126-G Roll-Over: The Transferring Trust transfers the asset to a new unit trust's trustee (the 'Receiving Trust') for the purchase price, resulting in a debt owed to the Transferring Trust. Both trusts opt for CGT roll-over under Subdivision 126-G.
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Unit Subscription and Debt Repayment: The buyer subscribes for new units in the Receiving Trust equivalent to the purchase price. The Receiving Trust uses these funds to repay the debt to the Transferring Trust.
According to the ATO, these arrangements allow the Transferring Trust to sidestep tax on the capital gain that would typically occur from selling the asset directly to the buyer, even though the asset's ownership shifts to the buyer.
Tax Warning - Non-Arm's Length Parties
While the buyer in these arrangements is an independent party, the ATO warns that its concerns about these setups would still apply if the buyer were a non-arm's length related party.
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