Bowen announced on Friday that removing the trust cloning exception is consistent with the policy principle of taxing capital gains that arise where there is a change in ownership of an asset as typically occurs on the creation of a trust over a CGT asset (known as event E1) and on transferring a CGT asset to an existing trust (known as event E2).

The other current exception to CGT events E1 and E2, where the taxpayer is the sole beneficiary of the relevant trust that is not a unit trust and the taxpayer is absolutely entitled to the asset as against the trustee, will be retained.

A mere change of trustee of a single trust will continue not to trigger a CGT taxing point, Bowen explained.

The amendments will resolve uncertainty surrounding the application of the exception, which has created significant compliance and administrative costs for taxpayers and the tax office.

The amendments will also remove the possibility of using the trust cloning exception to eliminate tax liabilities on accrued capital gains in an attempt to ensure equity and the integrity of the tax system.

Bowen disclosed that legislation giving effect to this measure will be introduced as soon as practicable.

Initial consultation will be undertaken on the design of these amendments and details will be released shortly by the Treasury.

The amendments will apply to CGT events happening after October 31, 2008.