On 31 October 2008, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP announced that legislation will be introduced shortly to abolish the exemption from capital gains tax for trust cloning, with effect from the date of the announcement.
Ordinarily, when an asset is transferred from one trust to another, a capital gains tax event occurs and capital gains tax may be payable. However, the "trust cloning exemption" contained in sections 104-55(b) and 104-60(b) of the Income Tax Assessment Act 1997 (Cth) means there is no capital gains tax event if an asset is transferred from one trust to another trust and "the beneficiaries and terms of both trusts are the same".
The trust cloning exemption has been the subject of Taxation Ruling TR 2006/4 and some controversy regarding the width of the exemption. Since issuing this ruling, the ATO has adopted a stricter view of the exemption. On 30 January 2008 the ATO issued another publication stating that:
"Since issuing the Ruling [TR 2006/4] the Tax Office has become aware of further examples where trusts, particularly discretionary trusts, may not be "the same" and therefore assets transferred between the trusts will trigger a CGT event."
The Treasury has released a discussion paper in relation to the abolition of the trust cloning exemption. Submissions are due 3 December 2008 and are likely to be regarding the date of effect of the abolition. In particular, taxpayers who have submitted private ruling applications seeking to utilise the trust cloning exemption are likely to protest the sudden abolition.
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