Tuesday, May 1, 2012

What are the tax consequences of assets passing via a testamentary trust

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘what are the tax consequences of assets passing via a testamentary trust ?’ at the following link - http://youtu.be/pqngu0EddtQ

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below -

The reality has been that ever since the Practice Statement was released in around 2003, there has been a really implicit acceptance across the industry, and one would hope from the Tax Office as well, that the interpretation of Division 128 that allowed the transfer of assets, not only from a legal personal representative down into a testamentary trust, but then from that testamentary trust to another testamentary trust under some form of cascading arrangement, would be free from capital gains tax.

More importantly, any ultimate transfer out of the testamentary trust, whether it be the initial trust or a subsequent trust, would also be free of capital gains tax.

What that Practice Statement did was effectively give that approval from the Tax Office that that approach, that really had been the approach across the industry for many, many years, was not going to be challenged by the Tax Office.

What we've seen in very recent times, particularly with the 2011 federal budget, is that even though that approval seemed to be there from the Tax Office, the level of uncertainty that was created when you read that back with Division 128, meant that legislative reform was required.

We're seeing that coming through the system now with the announcement in the 2011 federal budget, which effectively looks to replicate the position under the Practice Statement from 2003.

Until next week.