Find out why using Trust to own investment property – Passing on 50% CGT discount
Unlike a company, which is not eligible for any capital gains tax (CGT) discount, a trust is eligible for the 50% CGT discount provided that the trust has held the property for at least 12 months before it is sold.
However, if the trust distributes the discounted capital gain to its beneficiaries (or unit holders in the case of a unit trust), the beneficiaries are required to ‘gross up’ the capital gain by multiplying the discounted capital gain by two. Assuming that the relevant beneficiary is an individual, the grossed-up capital gain will first be offset by any capital loss the relevant beneficiary has before the remaining capital gain is subject to the 50% CGT discount in the hands of the beneficiary again.
For a unit trust where the E4 amount would give rise to a taxable capital gain in the hands of the unit holders, it is important to note that the capital gain will also be eligible for the 50% CGT discount, provided that the unit holder has owned the units in the trust for at least 12 months.