Taxation consequences of changing trustees

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While you may be familiar with the process of changing trustees of a trust, you may not be so familiar with the taxation consequences that could arise.

In administering a trust, you may come across circumstances which require you to change the trustee of the trust. Where you change the trustee of a trust, the trustee will need to transfer the trust assets to the new trustee.

So are there tax consequences that arise on a change of trustee? If so, what are they?

Does a change of trustee trigger capital gains tax?

A change of trustee involves the transfer of legal title of the trust’s assets. However, CGT will not arise from the transfer of the trust’s assets to a new trustee. This is due to the fact that the trustee holds legal title to the trust’s assets for the benefit of the trust beneficiaries.

Does a change of trustee trigger transfer duty (stamp duty)?

In NSW, where the trust holds dutiable property, a transfer of trust assets between trustees may trigger transfer duty.

Dutiable property includes (without limitation):

  • land;
  • real estate; and
  • partnership interests.

If the trust holds dutiable property at the time of the change of trustees, on a change of trustees, the new trustee will generally have to pay transfer duty. The trust will need to pay transfer duty on the dutiable value of the dutiable property as at the date of the transfer.

Are there any exemptions to transfer duty on a change of trustees?

Section 54(3) of the Duties Act 1997 (NSW) provides an exemption to paying transfer duty on a change of trustee. Section 54(3) states that where a trustee retires or a new trustee is appointed, nominal duty is chargeable if:

  • none of the trustees are or can become a beneficiary under the trust; and
  • the transfer is not part of a scheme to avoid duty that involves conferring an interest, in relation to the dutiable trust property, on a new trustee or any other person (whether or not as a beneficiary) so as to cause any person to cease holding the whole or any part of a beneficial interest (or potential beneficial interest) in that property.

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How we can help

  • Help you vary your trust deed (including to appoint or remove trustees to/from your trust)
  • Advise you on the tax implications (capital gains tax and transfer duty) associated with a change of trustees
  • Advise you on whether you are able to rely on an exemption to transfer duty on a change of trustees
  • Help you minimise and manage the taxation implications that arise from the operation of your trust
  • Respond to reviews or audits from federal and state authorities in relation to your trust