What vesting means
A trust deed usually specifies a date, or an event (such as the youngest beneficiary attaining a certain age), on which the interests in the trust property must vest. The deed may describe this as the 'vesting date' or 'termination date'.
On vesting, the beneficial interests in the property of the trust become fixed. This is to avoid breaching the 'rule against perpetuities'. You should check your trust deed so that you are aware of when your trust will vest.
When a trust vests
What happens when a trust vests will depend on the terms of the trust. For example, the trust deed may direct that, on the vesting day, the trustee is to end the trust by distributing the trust property to particular beneficiaries or it may provide that the trustee continues to hold the trust property on trust from this date for certain beneficiaries.
The vesting of the trust does not always end the trust or create a new trust. If the trustee is permitted by the trust deed to hold trust property for specified beneficiaries after the vesting date, the same underlying trust relationship continues although the duties of the trustee will have changed. For example, the trustee will no longer have any discretionary powers to appoint income or capital after vesting.
There may be income tax implications of the trust vesting depending on the trust deed, including capital gains tax (CGT) consequences. Our views on the income tax consequences of a trust vesting are set out in Taxation Ruling TR 2018/6 Income Tax: Trust Vesting – amending the vesting date and consequences of a trust vesting
If the vesting of the trust has not resulted in a CGT event happening or led to the creation of a new trust, the trust continues to use its current trust registrations (ABN/TFN/GST).
Provisions of the trust deed dealing with vesting
You might have the power under your deed to amend the provisions that deal with vesting, including the vesting date. Determining this requires consideration of the terms of the trust deed, including any specific and general powers of the trustee and any relevant exceptions to those powers.
If the trust deed does not provide you with powers to extend or bring forward the vesting date, you will need to approach the supreme court in your state or territory to make any changes to the vesting date.
Continuing to administer the trust in the same manner as it was administered before the vesting date will not extend the vesting date.
It's too late to change the vesting date or vesting clause of a trust after it has vested.
Validly extended vesting dates
Amending the vesting date with a valid exercise of power in a trust deed or the approval of a relevant court prior to the trust vesting, will not cause CGT event E1 to happen or create a new trust.
Administrative approach on trusts vesting
We want to support trustees and beneficiaries who engage with us and want to get their tax affairs in order.
You are encouraged to contact us before you lodge your return if you have any concerns whether your trust may have vested or is about to vest. We will work with you to get it right.
We won't devote compliance resources solely to apply TR 2018/6 Income Tax: Trust vesting – consequences of a trust vesting in relation to trusts that vested before the issue of the final ruling. However, we will act consistently with the views set out in TR 2018/6 where the Commissioner is required to:
- issue or amend assessments (if we identify other tax risks in relation to the trust during compliance activities that affect its net income and to whom it is assessed)
- state a view (for example in a private ruling or in submissions in a litigation matter).
We won't apply penalties that trustees or beneficiaries may be liable to pay where the parties engage with us and have a compliance history that shows they have been generally compliant with their tax obligations. We also won't assess interest where it can be established, or the Commissioner can reasonably be satisfied, that income tax has been paid on the net income of the trust that is consistent with what we consider to be correctly payable.
What you need to do
- You need to carefully check the trust deed to determine the vesting date and what action the trustee must take on vesting. We recommend that you regularly review your trust deed, but this is particularly important if there has been, or is proposed to be, a change in trustee or any other amendments to your trust deed.
- Understand your obligations on vesting as the trustee. Ignoring or being unaware of the trust vesting date can have significant tax and trust law implications for both trustees and beneficiaries. The best way to prevent any issues arising is to check the vesting date and vesting clause in your trust deed. This will allow you time to seek professional advice if the requirements are not clear, and make preparations or amendments to the trust deed as required.
- If the vesting date for your trust has already passed, you may want to seek professional advice about the legal implications of your trust vesting.
- You need to consider taking further action if you become of aware of any issues. This may include
- amending any relevant assessments that are within period of review (your amendment request should include the name of the trust that has vested)
- contacting us for advice if you have questions or concerns about the tax consequences of your trust vesting.
You can apply for a private ruling, request an early engagement discussion or write to us at the address below.
Australian Taxation Office
GPO Box 9990
[insert the name and postcode of your capital city]
For example:
Australian Taxation Office
GPO Box 9990
SYDNEY NSW 2001
Next steps:
- Early engagement
- Making a voluntary disclosure
- Applying for a private binding ruling
- Request an amendment to a business or super tax return