• 5.3 Changes in trust property

    In many trusts the property is whatever investments the trustee holds from time to time under its terms. In these situations changes in investments are generally consistent with a continuing trust estate.

    Some trusts by contrast may have highly specific subject matter, for instance a trust established for the express purpose of holding a particular asset. In these situations replacing the trust property with other assets may indicate the creation of a new trust.

    The relevant principle here is similar to that which we will apply to changes to the termination date: the more specific the subject matter of the trust, the stronger the likelihood that changes to that subject matter result in a new trust estate. Both the terms of the trust and purposes inferred from the surrounding circumstances will be taken into account.

    The creation of a trust through a nominal settlement and the later addition of the bulk of the trust property is a long standing practice. In Truesdale v. FCT 70 ATC 4056 it was held that a contribution of this type to an existing trust fund did not amount to the creation of a new trust in respect of that contribution for the purposes of section 102 of the Income Tax Assessment Act 1936. In comparable circumstances a new trust estate will not arise under Division 6.

    The situation is less clear when a later injection of assets takes place which is difficult to reconcile with the original trust purpose. One instance is the acquisition of new and different property in asset-specific trusts of the type referred to earlier. Another is when inactive trusts with negligible assets are 'revived' with new property. In these situations it may be that the injection amounts to a new trust estate incorporating the terms of the previous trust.

    The ATO accepts that this will not always be the case. For instance, a general purpose trust vehicle controlled by a particular group or family may be dormant for a period and then reactivated for a new activity which, in the overall circumstances, would not amount to a new purpose or theme. On the other hand, when control and/or 'ownership' of a trust without significant assets passes to new parties who then establish a new trust fund, it may be that a new trust estate is created.

    As a general principle, the ATO will usually not treat the mere addition of new property to an existing trust fund as giving rise to a new trust estate. However, such additions will be taken into account when accompanied by other potential indicia of a new trust.

    An important point is that there can be no trust without trust property, so exhaustion of the trust fund will bring a trust estate to an end.

      Last modified: 20 Apr 2012QC 16266