Tax consequences of trust vesting
The Australian Taxation Office (ATO) has issued a long-awaited ruling on trust vesting, including changing a trust’s vesting date and the CGT and income tax consequences of vesting
A trust’s “vesting date” is the day when the beneficiaries’ interests in the trust property become fixed. The trust deed will specify the vesting date and the consequences of that date being reached. Vesting does not, of itself, ordinarily cause the trust to come to an end or cause a new trust to arise. In particular, the underlying trust relationship continues after vesting while the trustee still holds property for the takers.
The key points in the draft ruling are that:
- before vesting, it may be possible to extend the vesting date (by applying to a court or by the trustee exercising a power to nominate a new vesting date);
- it is too late to change the vesting date once it has passed (and the ATO says it is unlikely that a court would agree to do so); and
- continuing to administer a trust in a way that is inconsistent with the vesting terms can have significant CGT and income tax consequences.
Does your tax have a vesting date within 5 years? Failure to start planning now could have dire consequences.