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Edited version of your written advice
Authorisation Number: 1051250768647
Date of advice: 12 July 2017
Ruling
Subject: Trust - resettlement
Question
Do the proposed amendments to extend the vesting date of the Trust Deed cause a capital gains tax (CGT) event, including CGT event A1, E1 or E2, to happen?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2017
Year ending 30 June 2018
The scheme commences on
1 July 2016
Relevant facts and circumstances
The Trust was established in XXXX.
The trust is a discretionary trust.
The Trustee of the Trust is a company.
A person is the sole shareholder and director of the Trustee company.
The applicant provided a copy of the following documents:
● a Deed of Settlement (The Deed)
● a draft Deed of Amendment for the Trust
These documents are parts of the arrangement being ruled on and should be read in conjunction with the description of the arrangement.
The Deed allows provisions of the Deed to be revoked, added to or varied by the Trustee.
The Trustee wants to exercise its power under Deed to vary a number of clauses to extend the vesting date to the full 80 year perpetuity period allowable under state legislation.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 104-55
Income Tax Assessment Act 1997 section 104-60
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 as a result of various CGT events.
The Commissioner has released 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? which was published as a result of the court case Commissioner of Taxation 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.
A variation to the trust deed which extends the vesting day of the trust as outlined (Example 3) at paragraphs 7-10 of TD 2012/21 does not terminate the trust.
In this case, the proposed variations fall squarely within what is described in example 3 in TD2012/21 and accordingly will not result in a termination or the creation of the trust. Therefore no CGT event will occur upon the making of the proposed variations.
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