4. General principles
In the ATO's view both the stamp duty and estate duty cases indicate that a new trust arises when there is a fundamental change to the trust relationship. It is a change in the essential nature and character of the original trust relationship which creates a new trust. This may mean that the original trust ceases to exist, and a new trust arises. Alternatively, a new trust may arise which exists independently of the original trust.
Changes potentially leading to a new trust can arise by several means, including variations under a power in the deed and a variation by agreement among the beneficiaries. Listed below are some of the changes which raise the question of whether a new trust has been created.
- Any change in beneficial interests in trust property.
- A new class of beneficial interest (whether introduced or altered).
- A possible redefinition of the beneficiary class.
- Changes in the terms of the trust or the rights or obligations of the trustee.
- Changes in the nature or features of trust property.
- Additions of property which could amount to a new and separate settlement.
- Depletion of the trust property.
- A change in the termination date of the trust.
- A change to the trust that is not contemplated by the terms of the original trust.
- A change in the essential nature and purpose of the trust.
- A merger of two or more trusts or a splitting of a trust into two or more trusts.
Depending on their nature and extent, and their combination with other indicia, these changes may amount to a mere variation of a continuing trust, or alternatively to a fundamental change in the essential nature and character of the trust relationship. In this second case, the original trust is brought to an end and/or a new trust created.
Whether a new trust is created will depend, among other things, on the terms of the original trust, and on the powers of the trustee. The original intentions of the settlor must be considered in determining whether a new trust has been created. There may be different trigger points/tests for different types of trusts.
The answer to whether alterations to trusts, taken together, result in terminations and creations of trust estates will generally flow from establishing whether the essential nature and character of the original trust relationship has fundamentally changed. Nothing that the High Court said in the Commercial Nominees of Australia Limited case is contrary to the principles stated here in relation to trusts generally.
The remainder of this statement considers the application of these principles in some specific scenarios.
Trust resettlements - AIFRS related amendments to trust deeds also considers the application of these principles where trust deeds are being amended to address issues raised by the introduction of the Australian equivalents to the International Financial Reporting Standards (AIFRS).