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Edited version of your private ruling
Authorisation Number: 1012522821763
Ruling
Subject: CGT event E1 and E2
Question
Does CGT event E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997) happen if the terms of the Trust are amended?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
During the income year ended 30 June 2014
Relevant facts and circumstances
1. The Trust is a discretionary trust.
2. In accordance with the Trust Deed, the Trustee has the power to amend the Trust Deed.
3. The Trustee is proposing to amend the Trust Deed.
4. The proposed amendments do not result in the termination of the Trust for trust law purposes.
5. The proposed amendments do not lead to the result that a particular asset will become subject to a separate charter of rights and obligations such as to give rise to the conclusion that that asset has been settled on terms of a different trust.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-55
Income Tax Assessment Act 1997 section 104-60
Reasons for decision
Section 104-55 of the ITAA 1997 provides that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement. Section 104-60 of the ITAA 1997 states that CGT event E2 happens if you transfer a CGT asset to an existing trust.
Taxation Determination TD 2012/21 Income tax: does CGT event E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 happen if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court? (TD 2012/21) states that neither CGT event E1 nor CGT event E2 in sections 104-55 or 104-60 of the ITAA 1997 happens unless:
· the change causes the existing trust to terminate and a new trust to arise for trust law purposes, or
· the effect of the change or court approved variation is such as to lead to a particular asset being subject to a separate charter of rights and obligations such as to give rise to the conclusion that that asset has been settled on terms of a different trust.
Paragraph 24 of TD 2012/21 states:
24. …In light of those principles, the ATO accepts that a change in the terms of the trust pursuant to exercise of an existing power (including an amendment to the deed of a trust), or court approved variation, will not result in a termination of the trust and, therefore, subject to the observation in paragraph 27 below, will not result in CGT event E1 happening.
Paragraphs 26 and 27 of TD 2012/21 provide further explanation:
26. Whether a purported change to a trust in exercise of a power under the deed is properly supported by the power is to be determined in accordance with principles of trust law having regard to the scope of the power properly construed. Relevant to this question will be whether the deed itself explicitly specifies conditions (including procedural conditions) that need to be satisfied for the exercise of the power to be effective.
27. Even in instances where a pre-existing trust does not terminate, it may be the case that assets held originally as part of the trust property commence to be held under a separate charter of obligations as a result of a change to the terms of the trust - whether by exercise of a power under the deed (including a power to amend) or court approved variation - such as to lead to the conclusion that those assets are now held on terms of a distinct (that is, different) trust.
The proposed amendments to the Trust Deed do not result in the termination of the Trust for trust law purposes. Further, the proposed amendments do not lead to the result that a particular asset will become subject to a separate charter of rights and obligations such as to give rise to the conclusion that that asset has been settled on terms of a different trust.
Thus, in accordance with TD 2012/21, neither CGT event E1 nor CGT event E2 in sections 104-55 or 104-60 of the ITAA 1997 happens.
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