The recent introduction of the Small Business Restructure Roll-over (‘SBRR’) in Subdivision 328-G arguably effectively allows ‘active assets’ (broadly, business assets) to be transferred to a cloned discretionary trust CGT-free on or after 1 July 2016, as part of a genuine restructure of a small business. Where the SBRR applies, there are also no income tax consequences on the transfer of trading stock, depreciating and revenue assets.
The application of the SBRR requires, as a general rule, each discretionary trust to make a family trust election nominating the same test individual, and for the beneficiaries of each of these trusts to be members of that individual’s family group.
At the time the trust cloning exception was repealed, a limited roll-over was introduced into Subdivision 126-G of the ITAA 1997 for the transfer of CGT assets between fixed trusts with the same beneficiaries (and the same interests in each trust). The roll-over applies to CGT events that happen on or after 1 November 2008.
The roll-over was introduced to ensure that CGT is not an impediment to the restructure of such trusts, while ensuring that subsequent changes to the manner and extent to which beneficiaries can benefit from these trusts are subject to appropriate tax consequences.
More specifically, Subdivision 126-G provides an optional CGT roll-over that allows the deferral of any capital gain or loss made on the transfer of one or more CGT assets between trusts if:
- a ‘fixed trust’ is created over one or more CGT assets transferred from another ‘fixed trust’; or
- a ‘fixed trust’ transfers a CGT asset to another (existing) ‘fixed trust’.
If an asset is transferred to an existing trust, the receiving trust must be an ‘empty trust’. That is, it must have no CGT assets just before the transfer time, other than:
- small amounts of cash or debt; or
- its rights under an arrangement, if (collectively) they only facilitate the transfer of assets to it.
In effect, the roll-over replaces the former trust cloning exception, but only for transfers between (eligible) fixed trusts. Note that special rules apply for multiple asset transfers for which the Subdivision 126-G roll-over is chosen to be applied. These rules are outside the scope of the notes and will not be discussed in further detail.