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Edited version of private ruling
Authorisation Number: 1011579502903
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Ruling
Subject: CGT event E1 and Trust Resettlement
Will the amendments to the trust deed for the Family Trust cause capital gains tax (CGT) event E1 to happen?
No.
This ruling applies for the following period:
1 July 2009 - 30 June 2010
The scheme commences on:
1 July 2009
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
There is a trustee of the trust and beneficiaries of the trust.
The primary beneficiaries have children.
The trust deed enables the trustee to add to or vary all or any of the provisions of the trust deed, subject to some terms and conditions.
The trustee intends to vary to provisions of the trust deed by sharing an equal distribution to the beneficiaries upon the death of the primary beneficiaries.
The deed of trust for the trust forms part of the facts.
Summary
Detailed reasoning
Changes to the terms or objects of a trust may result in that trust ceasing and a new trust arising. A consequence of this happening is that the assets of the old trust are settled in the new trust. CGT event E1, as specified in section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997), occurs because a trust (the new trust) is being created over a CGT asset (of the old trust).
The Creation of a new trust Statement of Principles August 2001 (Statement of Principles) outlines when the Commissioner will treat changes as giving rise to a new trust estate.
The Statement of Principles makes it clear that a change to the essential nature and character of the original trust relationship creates a new trust. The Statement of Principles considers a number of changes that may result in the creation of a new trust. They include:
· 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
· a change in the essential nature and purpose of the trust.
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.
Clause 5.1 of the Statement of Principles considers the implication of the addition or removal of beneficiaries. The identity of those for whose benefit the trust was established is an essential element of the trust relationship. Therefore, changes amounting to a redefinition of a membership class or classes would terminate the original trust. By contrast, changes in the membership of a continuing class are consistent with a continuing trust.
Ordinarily, the Commissioner will accept that there has been only a change in membership of a continuing class when:
· an already existing power to nominate new beneficiaries is only exercisable under the terms of the trust in favour of a clearly defined group which it could be reasonably inferred that the trust was intended to benefit, and
· it can be shown from the deed and surrounding circumstances that the actual objective purpose or theme of the trust was to benefit that wider group.
The amendments do not change the basis group of beneficiaries for whose benefit the trust exists and, while there maybe an addition to the membership class, overall there is no redefinition of that class. This is consistent with a continuing trust.
Furthermore, the amendments provide for the families of the children and grandchildren to have an equal share of any distribution of income and capital after the death of the primary beneficiaries rather than a share arising at the discretion of the trustee. It is considered that this factor does not alter the original intention of the Settlor to generally benefit the family of the primary beneficiaries.
The proposed amendments will not introduce changes to the essential nature and character of the trust relationship. They will not alter the rights of the beneficiaries or the powers of the trustee, and will merely amount to a variation of a continuing trust.
Therefore, there will be no resettlement of the trust. CGT event EI will not happen.
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