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Edited version of your written advice
Authorisation Number: 1051234574878
Date of advice: 7 June 2017
Ruling
Subject: Whether the proposed amendment will resettle the trust or whether any CGT event will happen as a result of the proposed amendment
Question
Will the proposed amendment to the trust deed cause a resettlement of the trust so that CGT event E1, E2 or any other CGT event will happen?
Answer
No
This ruling applies for the following period
Year ending 30 June 2017
The scheme commenced on
1 July 2016
Relevant facts and circumstances
The trust was created was created by a deed.
The trust has a term of XX years, but there are provisions to appoint an earlier Vesting Date.
The original appointor was XX. After the death of the appointor, the appointor is the legal personal representative of XX.
The appointor died.
The legal personal representative of XX is X.
There is a list of primary beneficiaries.
The default income beneficiary is XX.
The default capital beneficiaries on the Vesting Day are the children of X equally, but if any child of X dies before the Vesting Day then that child’s children take equally their parent’s share.
A clause of the deed allows the trustee to amend the deed.
The trustee proposes to vary the trust deed by:
(a) Deleting the current definition of “The Vesting Day” in Clause X of the Deed and replacing it with the following new definition:
(i) The day nominated in writing by the Trustee; or
(ii) The day on which the Trust must end to avoid breaching the Rule against Perpetuities.
(b) Amending the definition of “The Beneficiaries” in Clause Y of the Deed by adding the words “or other descendants related by blood to the Grandmother” after each use of the word “grandchild” in subclause (iv) of that clause.
Relevant legislative provisions
Section 104-55 of the Income Tax Assessment Act 1997
Section 104-60 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.
The Commissioner has released Taxation Determination TD 2012/21 which was published as a result of the court case CoT v. Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark’s case). Whilst 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 2012/21 accepts that the principles set out in Clark’s case have broader application.
TD 2012/21 states that a valid amendment to a trust pursuant to an existing power will not result in CGT event E1 or CGT event E2 happening 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.
The trust deed allows for the trustee to amend the deed and in this case it is accepted that neither of the two exclusions mentioned above will apply as a result of the proposed Deed of Amendment. Consequently, neither CGT event E1 nor CGT event E2 will arise in relation to the change proposed. It is also considered no other CGT event will occur as a result of the proposed amendments.
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