Australia

Details

  • Service: Tax, Dispute Resolution
  • Type: Regulatory update
  • Date: 9/05/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Mark Poole

Mark Poole
Executive Director, Tax

+61 3 9288 5515

mpoole@kpmg.com.au

Absolute Entitlement – Beware the Trustee’s Power of Disposal 

by Mark Poole, Tax law Specialist

Many provisions in the Tax Acts rely on the concept of 'absolute entitlement', including the flow-through treatment of franking credits and numerous capital gains tax (CGT) Events.

'Absolute entitlement' is not defined in the Tax Acts, but draws its meaning from the decision in Saunders v Vautier, where it was held that an adult beneficiary who has an 'absolute, vested and indefeasible interest' in the property of a trust may at any time call for the transfer of the trust property.

 

The question of whether a beneficiary’s interest is 'absolute, vested and indefeasible' was central in Oswal v Commissioner of Taxation, a 2013 decision by Edmonds J.

 

His Honour held that the beneficiaries of a trust had not become 'absolutely entitled' to the property of the trust for the purposes of triggering CGT Event E5.

 

The trustee had resolved to appoint part of the trust’s property for the absolute benefit of the beneficiaries, and that such property would be held on separate trust for those beneficiaries.

 

Edmonds J decided that CGT Event E5 had not been triggered because the trustee had the power to dispose of Trust property. This power of disposal existed both in the provisions of the relevant trust deed, and also in s18 of the Trustee Act 1962 (WA).

 

It was critical that the beneficiaries had not taken possession of the property to which they had been made (ostensibly) absolutely entitled even though the Trustee had resolved that such property would be held on a separate trust.

 

His Honour found that the property therefore remained subject to the trustee’s power of disposal, and as such the beneficiaries’ interest in the property was defeasible.

 

The decision in Oswal needs careful consideration when analysing the extent of a beneficiary’s interest in trust property.

 

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