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Understanding TA 2019/2 Arrangements

TA 2019/2 examines specific setups where a Transferring Trust sells an asset to a buyer, typically following these steps:

1. Setting Up the Receiving Trust: The Receiving Trust is established with minimal funds and units issued. Both the Receiving Trust and the Transferring Trust share the same beneficiaries with identical entitlements, without significant discretionary powers.

2. Asset Transfer: The Transferring Trust transfers the asset to the Receiving Trust for the agreed purchase price, resulting in a capital gain for the Transferring Trust.

3. Subdivision 126-G Roll-Over: Both trusts opt for the Subdivision 126-G roll-over. This means the Transferring Trust disregards the capital gain from transferring the asset to the Receiving Trust.

4. Debt between Trusts: After the transfer, the Receiving Trust owes the Transferring Trust the purchase price, often in the form of a promissory note.

5. Subscription and Repayment: The buyer subscribes to a significant number of new units in the Receiving Trust, equal to the purchase price. The Receiving Trust uses these funds to repay the debt to the Transferring Trust.

6. Unit Exchange: Finally, the buyer typically acquires the original units in the Receiving Trust for a nominal amount and replaces the existing trustee with their chosen entity.

These steps may happen in quick succession or be structured over stages as part of a larger scheme.

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