The unintended action of triggering a resettlement as a result of an amendment to a trust deed, when a family trust is set up to provide for family beneficiaries, ranks as one of the top SMSF “stuff ups”, according to a legal executive.
“When we’re amending a trust deed we don’t want to cause a resettlement. If we cause a resettlement that causes a capital gains tax event in respect of every asset in the trust and you’ll also get a stamp duty liability particularly in respect of real property so this is something we want to avoid,” State Chambers barrister Ben Symons told delegates at the Chartered Accountants Australia and New Zealand National SMSF Conference 2017 held in Sydney last week.
Resettlement is where an amendment to a trust deed would indicate the original deed has ended, the assets of the trust have been resettled and a new deed has been created.
To avoid this scenario Symons said trustees had to show three different continuums exist after the amendment.
“We need to show a continuum of trust obligations, a continuum of trust property, and a continuum of beneficiaries of the trust,” he explained.
Symons pointed out the issue was addressed in the case of Commissioner of Taxation v Clark with a determination that strict or partial identity of these continuums is not required but said it was not made clear what is required.
However he referred to the Tax Determination TD 2012/21 released by the ATO as a good source of reference advisers and SMSF trustees could use for these scenarios.
“That [determination] indicates that amending the trust deed to allow for streaming of capital gains or dividend is okay but amending a trust deed where certain assets are held for certain beneficiaries will cause a resettlement and that is a good view,” he said.
According to Symons, the most likely situation where certain assets would be held for certain beneficiaries the result of a dispute resolution within an SMSF and stipulated it would trigger a capital gains tax event for every asset in the SMSF as well as stamp duty liabilities with respect to property.
Further, he said the ATO had issued an addendum stating an amendment to the trust deed extending the vesting date of the trust would not cause a resettlement.
“It will mean the category of beneficiaries is much larger but in the ATO’s view that’s generally okay,” he noted.