In this edition of ‘It depends’, senior associate Keeghan Silcock talks about whether you can use a trust cloning strategy as a way to transfer assets between two trusts without duty or, potentially, CGT.
Hi, and welcome to another edition of It Depends. Today, I’ll be talking about whether you can use trust cloning strategy as a way to transfer assets between two trusts without duty or potentially CGT.
Where is the asset of the trust you want to transfer located?
It depends. Trust cloning strategy is unique to Queensland. So, the first major it depends factor is where are the assets of that trust located. If the asset you’re looking to transfer is located in Queensland, then trust cloning may be a strategy for you.
What is trust cloning?
So, what is trust cloning? Trust cloning, simply put, is where you have an existing trust that owns an asset and you want to transfer it out of that trust to a new trust. You set up the new trust in a particular way. Importantly, so that it has the same trustee as the first trust and the same trust interests as the first trust. And what that means is for a discretionary trust, you need to have the same default beneficiaries or for a unit trust, you need to have the same unit holders. Or for an SMSF, you need to have the same members of that SMSF and all of those trust interests need to be held in the same proportion as between those two trusts. If you satisfy those requirements and the transfer of the asset is done correctly between trust one and the new cloned trust, then you can, in Queensland, transfer an asset between those two trusts without any duty.
What about the tax consequences of the transfer?
However, there is no specific tax exemption that applies for CGT purposes on the transfer of assets between the two trusts. This means that the transfer of assets will attract CGT potentially, although it could be minimised or completely eliminated altogether, depending on the availability of particular concessions, such as a small business, CGT concessions.
If you have a client who is wanting to shift assets out of a trust into a new trust in Queensland, we suggest seeking advice about whether trust cloning could be a strategy for them so that there is no duty payable on that transfer. Please feel free to contact a member of our team who would be happy to assist with that.