Edited version of your written advice

Authorisation Number: 1012802358976

Ruling

Subject: Trust resettlement - removal or exclusion of beneficiary

Question 1

Will the exclusion of a beneficiary constitute a resettlement of the Family Trust?

Answer

No

This ruling applies for the following periods:

01 July 2014 to 30 June 2015

The scheme commences on:

01 July 2014

Relevant facts and circumstances

The Family Trust is a discretionary trust which was settled in a particular year by the settlor in the State of X, for the settled sum of $.

The Trustee of the Trust, as at the date of settlement, was a natural person, in the State of X and as at the date of this report, the Australian Taxation Office records show that the same person remains the trustee.

The executed Trust Deed as provided in support of this ruling application, states the Primary Beneficiaries to be:
The stated husband and wife in the State of X; and
The children of the stated persons as husband and wife.

The Trust Deed also states the General Beneficiaries to be:
The Primary Beneficiaries and any person (excluding the settlor or persons claiming under or in right of the settlor) who is related by blood or marriage to either of them;

Any person or body established wholly for charitable purposes; and
Any school, college, university or other place of education.

The Trustee wishes to exclude one of the beneficiaries of the Trust, covered under clause 1.2.2 of the Trust Deed as a General Beneficiary, being the relative of one of the primary beneficiaries.

The Trustee claims that the nominated identified excluded beneficiary has never received a distribution from the Family Trust.

The Trustee argues that the exclusion of the identified and named person from the listed class of General Beneficiaries and as she/he has never received a distribution and as clause 1.2.5 of the Trust Deed gives the power to the Trustee to remove a beneficiary, will not result to a re-settlement of the Trust

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-55

Income Tax Assessment Act 1997 section 104-60

Reasons for decision

The Commissioner's view relating to the circumstances as to whether one trust estate could come to an end and a new trust estate commence, has been previously and is currently expressed in the following ATO view documents:

• A document issued by the Commissioner in June 1999 and reissued in August 2001(which was withdrawn on 20 April 2012) called "Creation of a new trust - Statement of principles".
The Commissioner's view in the document was that a new trust would commence when there was a fundamental change to the existing trust relationship which would alter the essential nature and character of the original trust relationship.

• Taxation Determination TD 2012/21 expressing the Commissioner's current view relating to the circumstances as to whether one trust estate could come to an end and a new trust estate commence and a CGT event E1 or E2 in sections 104-55 and 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997) happen if the terms of a trust are changed.

The issue of Taxation Determination TD 2012/21 was as a result of the Full Federal Court decision in Commissioner of Taxation v. David Clark; Commissioner of Taxation v Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark) which indicated the approach formerly set out in the Statement of Principles was not sustainable.

According to TD 2012/21 the Commissioner accepts that, as a general proposition, the approach adopted by the Full Federal Court in Commissioner of Taxation v. Commercial Nominees of Australia Ltd [1999] FCA 1455; 99 ATC 5115; (1999) 43 ATR 42 (Commercial Nominees), is authority for the proposition that assuming there is some continuity of property and membership of the trust, an amendment made to the trust that is made in proper exercise of power of amendment contained under the trust deed, will not have the result of terminating the trust, irrespective of the extent of the amendments made, as long as the amendments are properly supported by the power of amendment, or varied with the approval of a relevant court unless:

• The change causes the existing trust to terminate and a new trust to rise 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 the asset has been settled on terms of a different trust.

The Commissioner accepts as an accurate statement of the current law, that continuity of trust is a function of whether the trust continues in existence under trust law in contradiction to having terminated.

Amendments to the trust which are validly made pursuant to power of amendment and which will not result or lead to the creation of a new trust, include amendments adding to, or deleting beneficiaries, the extension of the vesting day, amendments to the definition of income and amendments to permit the "streaming' of the definition of different classes of income.

As the trustee in this instance is proposing to delete/exclude a beneficiary from the class of General Beneficiaries and such action and amendment is supported under clause 1.2.5 of the Trust Deed, such change will be made in proper exercise of power of amendment contained under the trust deed, and will not have the result of terminating or resettling the trust.

Conclusion.

The action by the trustee to exclude a beneficiary from the General Beneficiaries class, will not result in a trust resettlement for the purposes of the application of section 104-55 of the ITAA 1997.

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