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Edited version of your private ruling
Authorisation Number: 1012574043006
Ruling
Subject: Family trust deed variation
Questions & Answers:
1. Does the variation of the proposed Deed of Variation, to define "children" to include step-children in respect of the Family Trust, give rise to Capital Gains Tax (CGT) event E1 under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) or any other CGT event?
2. No.
3. Does the variation of the proposed Deed of Variation, to replace the description of "Primary Beneficiary" in respect of the Family Trust, give rise to CGT event E1 under section 104-55 of the ITAA 1997 or any other CGT event?
4. No.
This ruling applies for the following periods:
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2013
Relevant facts and circumstances
The Applicant Trust holds no pre-CGT assets, only post CGT assets.
A draft proposed Deed of Variation has been prepared (but not yet effected) pursuant to the Trust Deed (Proposed Deed of Variation) seeking to add the following interpretation clause regarding the word children:
"Reference to children includes step-children and adopted children."
The Proposed Deed of Variation also seeks to vary the Schedule to reflect the composition of the Family by specifying the Primary Beneficiaries to include the new spouse, their children and grandchildren.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-55
Income Tax Assessment Act 1997 Section 104-60
Income Tax Assessment Act 1997 Section 104-75
Reasons for decision
In its table of sections, Subdivision 104-E of the ITAA 1997 lists CGT events that may happen in relation to trusts, including:
· Creating a trust over a CGT asset: CGT event E1 (section 104-55).
· Transferring a CGT asset to a trust: CGT event E2 (section 104-60).
· Beneficiary becoming entitled to a trust asset: CGT event E5 (section 104-75).
Taxation Determination TD 2012/21 is about 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. It confirms, if the terms of a trust are changed, CGT events E1 and E2 will not happen unless: (i) the change causes the existing trust to terminate and a new trust to arise for trust law purposes or (ii) 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.
Example 4 in TD 2012/21 is about where CGT events E1 and E2 happen as a result of, in exercise of their power, the trustee declares that one of several assets forming part of the corpus of the trust is henceforth to be held exclusively in trust for one of the objects (beneficiaries).
In your case, the proposed variations to the Applicant Trust deed will maintain the discretionary nature of the Applicant Trust, will not provide any specific beneficiary with absolute entitlement over any specific trust property and/or will not result in any other changes, as indicated in TD 2012/21, that would result in a CGT event. It follows a CGT event will not happen in relation to the proposed variations of the Applicant Trust deed.
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