1. Scope of issue
The ATO has been seeking to clarify when changes to a trust are such that for income tax purposes one trust estate comes to an end to be replaced by another. For convenience these situations are sometimes referred to as 'resettlements', although resettlements in the technical sense may be only one way in which such terminations occur. The consequences of terminating the trust can include:
- realisation at trustee level of the trust property, and the loss of carried forward tax benefits
- disposal by beneficiaries of their interests and an acquisition of interests in the new trust.
In other situations, although the original trust estate may continue, changes may lead to the creation of one or more new and separate trust estates for tax purposes.