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Edited version of private advice

Authorisation Number: 1012641197755

Ruling

Subject: Variations of terms of trust deed and CGT event E1

Question 1

Will the Variation cause the creation of a new trust and give rise to CGT event E1 pursuant to section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following periods:

1 July 2013 to 30 June 2014

1 July 2014 to 30 June 2015

The scheme commences on:

1 July 2013

Relevant facts and circumstances

The Trust was established by a trust deed between the Settlor and the Trustee (Trust Deed).

Under the terms of the Trust Deed the Trustee has the power to amend and vary all or any of the trusts, powers or provisions declared or included in the Trust Deed.

The Trustee proposes to exercise the power conferred under the Trust Deed to add a new class of beneficiaries and to insert definitions of new terms to the Trust Deed.

The Trustee also proposes to insert an additional clause to the Trust Deed in respect of distributions of capital to the new class of beneficiaries and to place restrictions and conditions on the Trustee's power to make such distributions in the event of a matrimonial dispute.

The above amendments are referred to as Variation.

The purpose of the above Variation is to reduce the risks if a beneficiary is involved in a matrimonial property dispute.

Relevant legislative provisions

Section 104-55 of the Income Tax Assessment Act 1997

Reasons for decision

When a variation is made to the terms of a trust deed CGT event E1 under section 104-55 of the ITAA 1997 or CGT event E2 under section 104-60 of the ITAA 1997 may happen.

CGT event E1 happens when a trust over a CGT asset is created by declaration or settlement.

CGT event E2 happens if a CGT asset is transferred to an existing trust.

The effect of a change to the terms of an existing trust might lead to a termination of the trust. Even where the trust does not terminate in some circumstances it may be concluded that a new trust has been created over a particular trust property to which the change relates.

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? states that CGT event E1 and CGT event E2 will not generally happen if the terms of a trust are changed pursuant to a valid exercise of a power contained in the trust's constituent document, or are varied with a court's approval. However, a CGT event will occur if the change:

Paragraph 24 of TD 2012/21 states that:

Paragraphs 26 and 27 of TD 2012/21 clarify that:

The Trust Deed gives the Trustee the powers to amend the trust powers and provisions. The proposed Variation, therefore, is made within these powers and pursuant to a valid exercise of the Trustee's powers contained within the Trust Deed. The Variation will not cause the creation of a new trust and will not give rise to CGT event E1 under section 104-55 of the ITAA 1997.


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