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Edited version of your written advice
Authorisation Number: 1012801677216
Ruling
Subject: Capital Gains Tax - Trust Resettlement
Question 1
Will amending The Trust deed trigger CGT event E1?
Answer
No.
Question 2
Will changing The Trust principal trigger CGT event E1?
Answer
No.
This ruling applies for the following period(s)
Year ended 30 June 20XX
The scheme commences on
1 July 20XX
Relevant facts and circumstances
The Trust was established in 19XX.
A was the principal of the trust.
A passed away and as per the terms of the trust deed, B became the principal of the trust.
The trust deed is silent in relation to changing the principal.
The trust deed allows the trustee to amend the deed.
The amendment is intended to allow for the retirement of the B.
Relevant legislative provisions
Section 104-55 of the Income Tax Assessment Act 1997
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 the case of 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 2012/21, as the Trust Deed allows for the Trustee to amend the deed, CGT event E1 or E2 does not arise in relation to the changes proposed.
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