Could trust splitting soon result in increased tax obligations?
A draft taxation determination released recently has triggered some alarm among trustees that certain previously benign trust re-arrangements may soon lead to new tax obligations being attached.
TD 2018/D3 posits that certain trust split arrangements should be viewed as the creation of a new trust over some, but not all, of the assets held by the original trust. The result, as set out in the TD, would be to trigger CGT event E1.
While the draft determination allows that there are many forms of arrangement that can be described as a “trust split”, it says that for the purposes of the change to the rules, this refers to an arrangement “where the parties to an existing trust functionally split the operation of the trust so that some trust assets are controlled by and held for the benefit of one class of beneficiaries, and other trust assets are controlled and held for the benefit of others”. […]