Trust resettlements and CGT

Capital Gains Tax and resettling trusts deeds

The ATO has effectively confirmed that a trust deed can be varied without the trust being ‘resettled’ and causing Capital Gains Tax (CGT) problems.

More specifically, they state that there should be no CGT consequences if the trustee validly exercises a power contained within the trust deed to change the terms of the trust (or the deed is varied with the approval of a relevant court), unless:

  • the change causes the existing trust to terminate and a new trust to arise for trust law purposes; or
  • the effect of the change leads to a particular trust asset being subject to separate rights and obligations, giving rise to the conclusion that the relevant asset has been settled on terms of a different trust.

The Personal Properties Security Register and your business

We have previously written about the Personal Properties Securities Register (PPSR). The PPSR allows businesses to register security interests over personal property, giving them rights over the personal property in exchange for the security of payment or the performance of a particular obligation.

Personal property is property that is not land, buildings, or fixtures. Personal property can be items such as machinery, stock, shares, debts, or even rights under a contract.

As previously discussed in the past these security interests would have been registered on a number of separate registers, such as with ASIC (if the security interest was over shares), or with REVS (if the security interest was a motor vehicle). The PPSR now streamlines all of that into one central register.

The PPSR also allows businesses or individuals to check whether the personal property they are purchasing have a security interest over them. This can provide potential buyers with a way how to double check and make sure that when the transaction is completed, the purchaser will have full rights to own the personal property. If there is a security interest attached to the car, then the vendor may not actually have the right to sell the car – but in the worst case scenario, the owner of that security interest (for example, the finance company who loaned the money for the car) can repossess the car if the loan has not been paid.

Because there is now a central register noting down all security interests, as a small business it should be theoretically easier to offer your plant and equipment / machinery as security for a loan, as it is easier for the bank to check if the equipment or machinery is either owned by someone else, or if someone else has already lodged their security interest on the equipment.

If you are a small business who sells goods on credit, you should consider registering your security interest on the goods, so that if your debtor does not pay your outstanding amount, you may try to repossess the goods. If you rent or lease out machinery and equipment, it might also be a good idea to register your security interest on the machinery and equipment.

For a small fee, the PPSR can be searched for a fee via http://www.ppsr.gov.au. If you are a small business, you should consider incorporating the PPSR and its features into your business processes!