Vesting Interests: Stamping out capital confusion – CGT and Victorian stamp duty consequences of a trust vesting

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Discusses the CGT and Stamp Duty consequences of trusts vesting in Victoria.
Australia Tax
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In our collective experience, our Taxation Team has observed that there have been innumerable family trusts that have been established in the 70s and 80s prior to the introduction of Capital Gains Tax and with short vesting dates of 40 or 50 years. This means that for the next decade or so, various family trusts will start vesting. Depending on how the affairs of the Trust are structured, there are important CGT and Stamp Duty implications of these trusts vesting. Further to this, the actions of the trustee/s and beneficiaries following the vesting date may also affect whether a Capital Gains Event has occurred and whether Stamp Duty is payable.

Our Taxation Team has noticed that there has been a marked increase in the number of clients requesting advice on the consequences of their trusts vesting. Hence, this article will discuss the CGT and Stamp Duty consequences of trusts vesting.

What does Vesting Mean?

Usually, a trust deed specifies a date in which the interests in a trust becomes vested. This can be described as the vesting date or termination date within the deed. On the vesting date, the interests in the property of the trust become vested in interest and possession.

CGT Consequences of Trusts Vesting

In assessing whether or not a CGT event has happened, the ATO in their TR 2018/6 acknowledged three possible CGT events that may occur when a trusts vests:

  • CGT Event E1 – A new trust has been created
  • CGT Event E5 – A beneficiary becomes absolutely entitled against the trustee
  • CGT Event E7 – Disposal to beneficiary to end capital interest

CGT Event E1

Ordinarily, the vesting of a trust will not cause a new trust to come into existence. Although a bare trust may be created, this is a mere continuation of the trust in the form of a bare trust and would not constitute the creation of a new trust. Section 104.55 notes that CGT event E1 occurs when a person creates a trust over a CGT asset by declaration or settlement. Indeed, the phrase "declaration and settlement" implies that the trust will need to be expressly created, for example, through the voluntary disposition of the interest in an asset by the person creating the trust in favour of another. This will rarely ever be triggered in the vesting of a trust.

There may circumstances in which the actions of the trustee or beneficiaries may result in a new trust to be created by declaration and hence trigger CGT event E1. TR 2018/6 provides the following example to illustrate in what circumstances a new trust will arise following the vesting date:

Example 4 – purported extension after vesting date

A discretionary trust holding several rental properties had a vesting date of 30 September 2016.

On 1 June 2017, the trustee became aware that the vesting date had passed and, with the acquiescence of the takers on vesting, continued to manage the trust as if the trust had not vested. On 29 June 2017, the trustee executed a deed of extension that purported to extend the trust's vesting date to 30 September 2057.

The subsequent execution of a deed of extension is void and ineffective to change the trust's vesting date that has already passed. Any power of the trustee to extend the vesting date ceased on 30 September 2016.

Note: if, once it is realised that the deed of extension is ineffective to change the trust's vesting date, all of the takers on vesting agree that the trust assets should continue to be held on a new trust on the same terms as the original trust, and this was effective to create a new trust over the assets by declaration or settlement, CGT event E1 would happen in relation to the trust assets.

As a result of the above, trustees and beneficiaries should take note of the following:

  • In considering any extension of the trust's vesting date (Prior to the trust's vesting date), trustees and beneficiaries should take account of the fact that any deed purporting to extend the lifespan of the trust past 80 years from the creation of the trust will be void as it contravenes the rule against perpetuities in Victoria; and
  • Any attempt to create a new trust over the existing trust assets following the vesting date will trigger CGT event E1.

CGT Event E5

Whether CGT event E5 occurs depend on whether a beneficiary becomes "absolutely entitled" to a CGT asset of the trust as against the trustee as per section 104.75. The ATO notes that at paragraph 20 of the ruling, whether any beneficiaries become absolutely entitled to an asset depends on the particular interests of the trust on vesting.

The phrase, "absolutely entitled" has been extensively considered. In Oswal v FCT, Edmonds J outlined that CGT event E5 could not arise as the beneficiaries could not become absolutely entitled to an asset where the trustee had a lien over the assets for their right to be indemnified out of the trust. With this in mind, noting that various trust deeds explicitly provide for the right of a trustee to be indemnified out of a trust, the beneficiaries may rarely become absolutely entitled to the CGT assets of the trust. Note that trustee will always have the common law right of indemnity against trust assets in respect of performing its duties.

In addition to the above, Draft TR 2004/D25 takes the view that a class of beneficiaries may only be absolutely entitled to the CGT assets of the trust where a single beneficiary has the right to all of the assets. Hence, in circumstances on a trust vesting where there is more than one beneficiary who is entitled to the assets of the trust, none of the beneficiaries will be absolutely entitled to the assets of the trust and CGT event E5 does not occur.

CGT event E7

CGT event E7 will not usually occur post vesting unless there has been a distribution of the CGT assets of the trust to the takers on vesting. TR 2018/6 provides an example of this occurring is upon actual distribution of CGT assets to beneficiaries. As such, if the trustee distributes the assets of the property out of the trust to the beneficiaries such that the beneficiaries' interest in the trust has ended, CGT event E7 will occur.

It should be noted that given that there has been a disposal of a CGT asset, CGT event A1 would also arise. However, by virtue of section 102.25 ITAA97, if more than one event does happen, the taxpayer is required to use the more specific event to their situation. Given that CGT event A1 is the broader event, it would be appropriate to apply CGT event E7 instead in these circumstances.

Stamp Duty Implications on Trust Vesting

On a trust vesting, it is unlikely that Stamp duty will arise in Victoria. Section 77 of the Duties Act 2000 (Vic) states that duty is chargeable over relevant acquisitions. Relevant acquisitions occur when a person acquires an interest in a landholder and that interest is a significant interest. A significant interest in respect of an acquisition in a private company occurs if a person in the event of a distribution of all the property of the landholder is entitled to more than 50% or more of the property distributed. Hence, upon the initial vesting of the trust and where the ownership of the property remains within the trust, no stamp duty arises.

If the trust decides to pass its assets to the takers on vesting, then stamp duty may be applicable depending on whether the stamp duty exemption under section 36A of the Duties Act 2000 (Vic) applies. Note that section 36A provides that no duty is chargeable in respect of a transfer of dutiable property subject to a discretionary trust to a beneficiary of the trust if the beneficiary was a beneficiary at the relevant time and no consideration is payable. The relevant time in this provision is defined to mean in relation to a dutiable property that is subject to the trust, the time at which the property first became subject to the principal trust. As such, the section 36A exemption is only to those beneficiaries who were beneficiaries at the time the trust had acquired the dutiable property and where consideration is not considered by the SRO to have passed from the beneficiaries. This must be carefully considered in each case.


  • Awareness of Trust Vesting Date: beneficiaries and trustees should be aware of the specific vesting date of their trusts. This is because vesting in the near future may have several CGT and stamp duty implications that need to be addressed.
  • Post-Vesting Actions: Some actions taken by trustees and beneficiaries after the vesting date are crucial. For example, if the trustees continue to manage the trust as if it has not vested without properly extending the lifespan of the trust, this may trigger CGT event E1.
  • CGT Implications: the vesting of a trust may have several CGT consequences. These include:
    • CGT Event E1 – This is unlikely to occur unless the trustees and beneficiaries agree the new assets are to be held on a new trust on the same terms as the old trust.
    • CGT Event E5 – Unlikely to occur due to the right of indemnity the trustee has over the trust and usually in family trusts, there is more than one beneficiary.
    • CGT Event E7 – Will occur if the trustee does make a distribution of trust assets to the takers on vesting.
  • Stamp Duty Implications:
    • Not generally triggered as a result of the vesting of the trust if the asset remains in the trust.
    • If the trustees do decide to make a distribution of dutiable property, trustees should consider whether section 36A applies and whether the current beneficiaries were beneficiaries at the time the trust acquired the dutiable property and the distribution was for no consideration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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