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Edited version of your written advice
Authorisation Number: 1051382864056
Date of advice: 8 June 2018
Ruling
Subject: Amendment to trust vesting date
Question
Will the extension of the vesting date of the Trust not give rise to CGT events El, E2 or A1 under sections 104-55, 104-60 or 104-10 of the Income Tax Assessment Act 1997?
Answer
Yes
This ruling applies for the following period:
30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
You propose to amend the trusts vesting date.
The Trust has not vested.
The Trustee has the powers to amend the vesting date.
The effect of the amendment will not 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 amendment will not cause the trust to terminate for trust law purposes.
Relevant legislative provisions
Division 104 of the Income Tax Assessment Act 1997
Reasons for decision
For the proposed modifications to the Trust Deed to not result in any vesting issues the following conditions must be met:
1. the trust must not have already vested at the time of the modification (TR 2017/D10);
2. the trust deed must contain valid powers to allow the trustee to extend the vesting date (TD 2012/21);
3. the amendment must not cause the trust to terminate for trust law purposes; and (TD 2012/21),
4. the effect of the amendment must not 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 (TD 2012/21).
Vesting Date
Draft Taxation Ruling TR 2017/D10 – Income Tax: Trust vesting – amending the vesting date and consequences of a trust vesting provides the following in relation to extension of the vesting date:
6. Prior to a trust’s vesting, it may be possible for the trustee or a Court to postpone the vesting of the trust by nominating a later date as the new vesting date.
7. However once the vesting date has passed, the trust has vested and this is no longer possible. Specifically, once the trust has vested, the interests in the trust property become fixed at law. This result cannot be avoided by the parties continuing to carry on as though the trust had not vested or by a purported exercise of a power to vary the deed.
The trust amendment is not occurring after the vesting of the trust as neither the vesting date or the period of perpetuity has occurred and the trust has not vested through the actions of the trustee.
Trust Deed Amendment
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? provides that determining if a trustee has the power to amend the trust deed takes careful consideration of the terms of the deed. Paragraphs 24 and 26 of TD 2012/21 provide the following:
… the ATO accepts that a change in the terms of the trust pursuant to exercise of an existing power (including an amendment to the deed of a trust), or court approved variation, will not result in a termination of the trust and, therefore, subject to the observation in paragraph 27 below, will not result in CGT event E1 happening.
and
Whether a purported change to a trust in exercise of a power under the deed is properly supported by the power is to be determined in accordance with principles of trust law having regard to the scope of the power properly construed. Relevant to this question will be whether the deed itself explicitly specifies conditions (including procedural conditions) that need to be satisfied for the exercise of the power to be effective
A modification to the Trust Deed has been proposed.
Under the Trust Deed the Trustee has wide ranging powers.
There are no clauses present within the deed that disallow this amendment to the Trust Deed.
The amendment will not cause the Trust to terminate for trust law purposes and will not result in a particular asset being settled on the terms of a different trust.
Conclusion
As all of the conditions have been met the proposed amendment to the trust deed will not result in a capital gains tax event occurring.
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