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The forgotten CGT events: are asset revaluation reserve distributions by trustees of discretionary trusts capital gains?

Publication date: 27 Jun 05 | Source: AUSTRALIAN TAX REVIEW

Issue: Vol 34. no 2 2005

Pages: pp.67-87

Abstract:

This article reviews how trustees of discretionary trusts perform asset revaluation reserve distributions. It then challenges the current accepted view that they can be distributed tax-free to discretionary beneficiaries by analysing relevant CGT events, which the authors regard as forgotten events. It will be submitted that a discretionary beneficiary in receipt of an asset revaluation reserve distribution may have a capital gain which is reqired to be included in its assessable income.  This liability for tax is regardless of the government's recent introduction of s 109XA to address the practice of asset revaluation reserve distributions bypassing the operation od Div 7A of the ITAA 1936 with such distributions.

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Author profiles

Peter M MCCDERMOT
Dr Brett Freudenberg CTA
Photo of author, Brett FREUDENBERG Brett Freudenberg is an Associate Professor – Taxation at Griffith University (Australia). Brett is known for his research expertise in the tax law and policy issues facing private enterprises, as evidenced by his Fulbright Scholarship (2006) and over 50 refereed publications in leading Australian and international journals. Associate Professor Freudenberg’s research has analysed whether Australia should introduce a tax flow-through company (S Corporation), the tax treatment of discretionary trusts and the motivation for choice of business structure. Associate Professor Freudenberg’s research has informed government policy as he was invited to present his PhD research findings to the Australian Treasury as part of the Henry Tax Review. Brett is passionate about education being a transformative process, and his effectiveness as a teacher has been recognised through five national awards (including the award of two Australian Learning and Teaching Council citations: 2008 & 2011). - Current at 29 May 2017
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