Rouse Lawyers

- The Law Firm For Business Owners and Entrepreneurs -

Call us: (07) 3648 9900

  • Home
  • Expertise
    • Corporate & Commercial
    • Private Wealth & Tax
    • Franchising
    • Technology
    • Intellectual Property
    • Commercial Litigation
    • Employment Law
    • Estate Planning
    • Property Law
  • About
    • Our Team
  • Reviews
  • Articles
  • Careers
  • Legal Guide
  • Contact

Trust Splitting: Opportunities Remain!

On occasions, it is desirable to restructure the assets of a trust. The motivations for a restructure can include: succession planning, separating control of certain assets to different persons, separating passive investments from business activities, and separating different businesses.

For Queensland practitioners, these restructures can be implemented without triggering stamp duty by implementation in accordance with a particular process that is not covered by the dutiable categories.

The sticking point is CGT. Until 31 October 2008, a trust cloning exception existed in CGT events E1 and E2 where the terms and beneficiaries of each of the trust were the same.

After 31 October 2008, an alternative often contemplated was through a process of trust splitting, which on a basic level involves appointing a separate trustee for certain identified assets of the main trust. Such a process would be effective for CGT purposes provided the trust split did not cause the creation of a new trust in respect of the assets held by the separate trustee.

Of itself, a trust split does not have the same effect as trust cloning prior to November 2008 since a trust split simply involves having separate trustees of one trust, whereas a trust clone resulted in a separate trust.

Some practitioners implemented additional steps – excluding beneficiaries in respect of the split assets, limiting the right of indemnity of each trustee to the assets held by that trustee, and placing the power to change trustees in respect of the split assets in a different person. These additional steps raise the question of whether the split trust caused the creation of a new trust.

The issue is considered in the ATO’s draft Taxation Determination TD 2018/D3. It concludes that an arrangement that displays certain factors are considered by the ATO to result in the creation of a new trust. In our view, the key factors identified by the ATO are:

  1. the existing trustee is removed as trustee of certain assets and a new trustee appointed to hold those assets;
  2. control of the original trustee resides with certain beneficiaries, and the new trustee is controlled by other beneficiaries;
  3. different appointors for each trustee;
  4. the trustee’s right of indemnity is limited to the assets held by each trustee;
  5. distributions are limited to a subset of beneficiaries associated with the controller.

Various trust splitting arrangements can be implemented without incorporating these factors. In particular, arrangements separating passive investments from business activities and different businesses would only require factor number 1.


Case Study

Joe Ryan as the sole director and shareholder of Ryan Pty Ltd, the trustee for the Ryan Family Trust. The trust fund of the Trust includes a substantial professional services business, and a passive investment portfolio. Joe wishes to change the trust arrangements by placing the ownership and operation of the professional services business in a separate trustee company. Joe establishes Ryan Services Pty Ltd, removes Ryan Pty Ltd as trustee of the professional services business, and appoints Ryan Services Pty Ltd as trustee for that business. These changes are not covered by the draft tax determination and are not considered to create a new trust. In addition, if the indemnity of Ryan Services Pty Ltd were limited to the services business (where legally permitted), we also consider the arrangement is not covered by the draft tax determination.


Takeaway

The draft tax determination is limited in its terms to trust splitting arrangements evidencing particular features. Opportunities remain to implement trust splitting arrangements that are not covered by the draft tax determination.

Nevertheless, trust splitting involves appointing separate trustees of a single trust. For that reason, we consider trust splitting arrangements should be a last resort option and other available alternatives should be canvassed.


By Domenic Festa (Accredited Tax Specialist and Chartered Tax Adviser)

NOTE: This article is for general information only and should not be relied upon without first seeking advice from one of our specialist solicitors.

November 9, 2018 Filed Under: News and Articles

ENQUIRE NOW

Enter your details below to get in touch with a legal professional and find out how Rouse Lawyers can help

We add new contacts to Rouse Lawyers database. We may send you information or service offerings we believe may be relevant to you. If you agree to being contacted by us in the future, send your enquiry. Naturally, you can unsubscribe any time.

Client Reviews

"Great knowledge, timely advice"

Rouse Lawyers has acted for us for the past 6 years, including franchising work, lease reviews and sales of certain businesses. Peter and the team not only have great knowledge, timely advice and have provided successful resolutions, but they also spend the time to learn not only about our businesses, but us as individuals.

David MckelvieBusiness Owner And Entrepreneur

“We highly recommend Rouse Lawyers”

“Camfil Farr is a multinational organisation and we use lawyers across the world. Rouse Lawyers, was chosen as alternative to the top tier, and have acted for us in a number of matters concerning our Australian operations. We have found their strategic advice and alternate approaches to the law to be highly valuable and unique. We highly recommend Rouse Lawyers”

Bruce LandfordCamfil Farr

"We highly recommend Matthew Rouse of Rouse Lawyers"

We engaged the services of Matthew Rouse of Rouse Lawyers for the sale of our Medical business. We understood this process could be long, stressful & complicated as it indeed turned out to be. Matthew handled the process with great care, patience & diligence & he helped to drive the negotiations forward culminating in a successful outcome. Matthew was always available for comment & advice & his unflappable nature was of great reassurance to us. We highly recommend Matthew Rouse of Rouse Lawyers.

Ailbhe & Frank Cunningham

PRIVACY POLICY DISCLAIMER TERMS

BRISBANE OFFICE

Ph: +61 7 3648 9900

Fx: +61 7 3648 9911

Level 2, 22 Wandoo St, Fortitude Valley, QLD 4006

17-Page Guide Reveals:

How To Protect Your Business and Your Assets While Allowing Your Business To Thrive

Written by Matthew Rouse, commercial lawyer and founder of Rouse Lawyers.

17-Page Guide Reveals:

How To Protect Your Business and Your Assets While Allowing Your Business To Thrive

Written by Matthew Rouse, commercial lawyer and founder of Rouse Lawyers.

Sign Up To Our Newsletter