Can I extend the vesting date of my trust?
Based on old English law the government does not want a trust to go on forever. This is because it may end up that no one is looking after the assets in the trust.
Therefore, in all States, other than South Australia, after 80 years your trust must ‘vest’. See for example Perpetuities Act 1984 (NSW).
The vesting date is the date defined in the trust deed as the date when the trust comes to an end. The trustee winds up the trust on the vesting date by distributing all of the trust assets to the beneficiaries. Whether the trustee does this or not the trust still ‘vests’. It comes to an end.
This means all the assets are deemed to have come out of your trust. This triggers:
1. Capital Gains Tax
2. Stamp Duty
3. ownership issues
4. asset protection
5. loss of licences
6. land tax
7. family law disputes
Before the start of CGT in 1985 many trusts often had a vesting date of less than 80 years. A vesting date of 21 years was not uncommon. Until recently the ATO took the view that you could not amend your trust deed to extend the vesting date to the maximum of 80 years.
The ATO changes its mind – you can now postpone the vesting date
The ATO issued Draft Taxation Ruling TR 2017/D10 Income Tax: Trust Vesting – amending the vesting date and consequences of a trust vesting in 2017.
The ATO now believes that if you have a trust with a vesting date of less than 80 years then:
- provided you do it before the vesting date, you may extend the vesting date. But the maximum period is still 80 years (except South Australia).
- if the vesting date has passed, you are too late. The trust has already vested. The trust has ended. Extending the trust is no longer possible. Even all the beneficiaries coming together cannot change this.
- you need a Deed of Variation (or a Court order) to extend the vesting date to 80 years. This can’t be implied. The vesting date cannot be extended by implication – such as the trustee and beneficiaries acting in a certain way.
What if you are too late to extend to 80 years?
It may be argued that the trust does not come to an end. However, we do not believe that is the case. On the vesting date, we believe that a new trust is created. The ATO Ruling has no clear view. The ATO states that the underlying trust relationship continues. But the nature of the trust has changed.
For a Family Trust on the vesting date (whether at the end of 80 years or an earlier date if so stated in the Deed):
1. The Appointor directs the Trustee to distribute the capital and any income to beneficiaries of its choosing
2. However, if the Appointor and Trustee forget to so distribute then the trust vests to the Residuary Beneficiaries (also called ‘takers in default’ or ‘Primary Beneficiaries’)
We believe that the ATO is correct but CGT may not be triggered. (The ATO disagrees with us on this point). We suggest that the ATO re-read:
Full Federal Court in Oswal v FCT  FCA 725
Chief Commissioner of Stamp Duties v Buckle (1995) 38 NSWLR 574
Andtrust v Giovanni Andreatta  NSWSC 38
Re Arthur Brady Family Trust  QSC 244 (Court amended the trust deed)
Supreme Court of New South Wales Paloto Pty Limited v Herro  NSWSC 445 (Court refused to extend the vesting date)
But the wrong vesting date went in
Rectification of the Deed is also possible. This where typographical errors are made such as typing 2031 rather than 2012.
What to do now
1. Check all your clients with Family Trusts, Unit Trusts and other trust deeds.
2. Email us the Deeds that have a vesting date of less than 80 years.
3. We prepare and email back a “Deed of Vesting Extension”, Minutes and the covering letter to confirm there is no resettlement or other taxation issues. (If the Deed does not allow an extension to the vesting date, then we amend the deed accordingly, first.)
There is currently an opportunity to extend vesting dates to 80 years. This window may close as quickly as it opened. Therefore, don’t wait. Extend the vesting date.
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National tax and trust partner
39 Stirling Highway, Nedlands, WA
Mobile: 0477 796 959
Direct: 08 6389 0400
National: 1800 141 612
Reception: 08 6389 0100