Why the ATO is Concerned
The Australian Taxation Office (ATO) is worried that taxpayers might be using these setups to dodge taxes on significant capital gains from selling CGT assets. Key concerns regarding these arrangements include:
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Compliance Issues: Some arrangements might not meet all the requirements for the Subdivision 126-G roll-over, particularly regarding the "empty trust" condition and having the same beneficiaries.
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Loss of Benefits for Receiving Trust: The roll-over might result in the Receiving Trust losing the ability to use its capital or revenue losses to offset future gains or income.
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Exploitation of Roll-Over: These arrangements seem designed to let the Transferring Trust avoid a capital gain that would otherwise be taxable.
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Change in Ownership Without Tax Trigger: The arrangement effectively changes asset ownership without triggering CGT, which goes against the roll-over's purpose.
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Complexity Over Simplicity: Selling the asset directly would have been simpler and more straightforward.
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Tax Advantages for Transferring Trust: The arrangement's form seems driven solely by the tax advantage it offers the Transferring Trust.
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Equivalent Payment: Despite the convoluted setup, the Transferring Trust receives the same total sum as it would have in a direct sale.
Additionally, the ATO warns that Part IVA of the ITAA 1936 might apply to these arrangements, and it provides tips on tax-free capital gains from selling assets to unrelated parties.
Tax Tip - Selling Assets Tax-Free
Selling CGT assets to unrelated parties without tax consequences is possible through concessions like the Small Business CGT concessions in Division 152 or the Small Business Restructure Roll-over (SBRR) in Subdivision 328-G.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
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