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Ruling
Subject: Trust resettlement
Question
Will the variations proposed to the Trust Deed trigger the happening of CGT event E1 or E2?
Answer:
No
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
The Trust was established by Deed of Settlement.
Under a clause of the trust deed the Settlor had power, with the consent of the Guardian, to wholly or in part revoke the trusts or to confer new or additional powers on the Trustee.
The Settlor died. As the Settlor is deceased the power of variation in a clause of the trust deed is no longer exercisable.
You propose to vary the Deed of Settlement with approval of the Court pursuant to section 90 of the Trustees Act 1962 (WA) to amend certain administrative provisions.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-55.
Income Tax Assessment Act 1997 Section 104-60
Reasons for decision
A trust resettlement will occur for income tax purposes where one trust estate has ended and another has replaced it. The effect of such a resettlement is that a disposal of the trust assets is deemed to occur. In consequence, capital gains could accrue to beneficiaries as a result of various CGT events.
Commissioner has recently released Taxation Determination TD 2012/D4 which was published as a result of a recent court case CoT v Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark's case). Whilst Clark's case dealt with whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, TD 2012/D4 accepts that the principles set out in Clark's case have broader application.
TD 2012/D4 asserts that a valid amendment to a trust pursuant to an existing power will not result in termination of the trust and therefore will not result in CGT event E1 happening.
Following the direction set out in TD 2012/D4, as the amendments have been approved by the Court, CGT event E1 or E2 does not arise in relation to the changes proposed.
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