Edited version of private ruling

Authorisation Number: 1051556982727

Date of advice: 30 July 2019

Ruling

Subject: CGT event E1

Question 1

Do the variations to the Trust Deed of the Green Family Trust cause capital gains tax (CGT) event E1 to happen pursuant to section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Questions 2 and 3

Does the appointment of the 'BG Trustee' and the 'CG Trustee' over their respective Asset Sub-Trust assets cause CGT event E1 to happen pursuant to section 104-55?

Does the appointment of Ben Green and Clare Green respectively as Appointor and Guardian over those Asset Sub-Trust assets cause CGT event E1 to happen pursuant to section 104-55?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 20xx

The scheme commences on

1 July 20xx

Relevant facts and circumstances

BACKGROUND

HT Green Trust

1.           In 1980, the Green Trust (Green Trust) was settled with John Green (now deceased) as the Settlor and Green Pty Ltd as the trustee.

a.           The current directors of Green Pty Ltd are Jane Green and her son, Ben Green.

b.           Prior to the current arrangement, the Trust Deed of the Green Trust has been amended on two occasions.

2.           The Schedule to the Trust Deed of the Green Trust (as amended) provides that:

a.           Jane Green is the Guardian of the Trust and that, upon her death, Ben Green and her daughter, Clare Green will jointly act as Guardian

b.           Jane Green is the Appointor of the Trust and that, upon her death, Ben Green and Clare Green will jointly act as Appointor, and

c.            the Primary Beneficiaries of the Trust are Michael Green, his spouse, Jane Green, and their children, Ben and Clare Green 'in such proportions as will result in the total income of all the primary beneficiaries being, as nearly as possible, equal as between themselves, taking into account their share of the income of this Trust and taking into account their income from all other sources but other than from any business carried on by them as soles owner or as a partner' and any more remoter issue of XYZ and the trustee of any other trust (the second trust) where anyone who is a beneficiary of this trust is also a beneficiary of the second trust.

3.           Clause 1(2) of the Trust Deed (as amended) broadly provides that the General Beneficiaries of the Trust are the Primary Beneficiaries and the parents, siblings, remoter issue, lineal descendants of the Primary Beneficiaries, any director or shareholder of a corporation that is a Primary Beneficiary and any corporation any share in which is beneficially owned by any Primary or General Beneficiary or by the trustee of any trust under which any Primary or General Beneficiary has an interest.

4.           Clause 1(13) of the Trust Deed (as amended) defines "income", "the income of the Trust Fund" and "net income" to mean the net income of the Trust as defined in section 95(1) but excluding notional amounts and capital.

5.           The Trustee is empowered, by signing a minute evidencing the decision, to decide at any time prior to 30 June of a particular year to adopt an alternative definition of income to that provided in the Deed, pursuant to clause 3(i)(A) of the Trust Deed (as amended).

6.           Clause 3(ii) of the Trust Deed (as amended) provides that the trustees shall pay, apply or set aside the whole or any part of the net income of the Trust Fund for each accounting period for such charitable purposes and/or to or for the benefit of any of the General Beneficiaries living in any such proportions as the trustees decide in their absolute discretion after considering the wishes of the Guardian.

7.           Clause 3(iii) of the Trust Deed (as amended) provides that the any income not paid, applied or set aside shall be held as set out in clause 26.

8.           Clause 26 of the Trust Deed (as amended) provides as follows:

In the event that Clause 3(ii) (clause 3(iii) as amended) hereof shall apply to the whole of the net income of the Trust Fund during any accounting period the trustees shall, for the purpose of Section 101 of the Income Tax Assessment Act 1936-74, or any corresponding section then in force, be deemed to have made a direction in writing of the whole of the said net income in favour of the Primary Beneficiaries named in the Schedule hereto and in the shares or proportions therein set out, and in such case Clause 25 hereof shall not apply.

9.           Clause 3(iv) of the Trust Deed (as amended) provides the Trustee with the power to accumulate all or any of the income of an accounting period before the expiration of that accounting period at their absolute discretion.

10.        Clause 4 of the Trust Deed (as amended) sets out the entitlements as from the Vesting Day. It provides that the trustees will stand possessed of the Trust Fund for such charitable purposes and/or for such of the General Beneficiaries for such interests in such proportions as the trustees may direct subject to the Guardian's written consent prior to the Vesting Day. If there is no Guardian alive, the trustee will have no power of direction. In default of such a direction, Clause 4 sets out the entitlements upon the Vesting Day. These default entitlements start with the Primary Beneficiaries alive on the Vesting Day as tenants in common and continue through successive alternatives until all of the assets of the Trust Fund are accounted for.

11.        Clause 6 of the Trust Deed (as amended) provides a range of additional powers to the Trustees at their absolute discretion. The first of these is a power to pay or apply any amount out of the capital of the Trust Fund to any of the General Beneficiaries before the Vesting Day.

12.        Clause 19 of the Trust Deed broadly provides that the trustees, with the consent of the Guardian, may by deed revoke, add to or vary all or any of the trusts governed by the Deed. In addition, the trustees may also declare any new or other trusts or powers concerning the Trust Fund, provided that the alterations or variations are not in favour of or for the benefit of the Settlor, Guardian or trustees but shall otherwise be for the benefit of all or any one or more of the General Beneficiaries and shall not affect any entitlements set aside for a beneficiary prior to the amendment.

13.        The Appointor is provided with the discretionary power to remove trustees and appoint new trustees to the Trust, pursuant to clause 20 of the Trust Deed (as amended) for the Green Trust.

14.        Clause 28 of the Trust Deed (as amended) provides that, prior to the Vesting Date, the Guardian (or a person or company nominated by the Guardian) shall have an option to purchase, at fair market value, the interests of the beneficiaries in the capital and undrawn income of the Trust.

15.        You state that the Green Trust owns shares in a publicly listed company, managed investment scheme, treasury bonds and cash in bank accounts not associated with a business.

Executed arrangement

16.        You state that Ben Green has taken over managing the Green Trust through his role as director of the trustee.

17.        You further state that although Jane Green maintains her mental faculties, she is elderly and is principally concerned with ensuring that her bills are paid and she has sufficient money with which to live. You state that Jane has income streams outside of that produced from the Green Trust. However, she currently collects the majority of the income produced by the Trust.

18.        You explain that Jane wishes that, after her passing, Ben and Clare (and their respective families) jointly share the benefits from the Green Trust. You state that although Ben and Clare have an amicable relationship, they have different views with regards to appropriate investments and have different appetites for risk. Due to this, a possibility exists for disputes in the future if the Green Trust is jointly controlled by them after their mother's death, as is currently provided by the Trust Deed.

19.        Moreover, you state that Ben and Clare would like to minimise any potential for future dispute between themselves, or their families, and ease succession planning risks. For these reasons, it is proposed that an arrangement be implemented to allow the Green Trust be split so that the assets of the Trust controlled by Clare be quarantined from risks associated from investment decisions made by Ben relating to assets of the trust controlled by him and vice versa.

20.        You state that after the implementation of the arrangement, the Green Trust will prepare consolidated financial statements and each of the trustees will sign off on the accounts.

21.        You further state that currently no decisions have been made with regards to the future distributions of the Green Trust and that such decisions will be made in the future years when it is known what income is available for distribution.

22.        You state that the Deed of Variation and Deed of Appointment have been executed during the year in which this ruling applies. You further state that the arrangement to separate Ben and Clare's respective interests in the Green Trust has been put into place sooner rather than later to avoid any potential conflict that may arise after the passing of Jane.

Executed Deed of Variation

23.        During the year ended 30 June 20XX, a Deed of Variation was executed, with approval from the Guardian, to insert the following into the Trust Deed of the Green Trust:

a.           clause 1(10A) - which provides a new definition of the term 'Asset Sub-Trust' as:

a sub-trust established by appointment of a separate trustee pursuant to clause 20A being a sub-trust in which specific assets, thereby becoming Asset Sub-Trust Assets, of the Trust Fund are managed by separate trustee and which may have separate Appointors appointed in accordance with clause 20B and Guardians appointed in accordance with clause 20C but otherwise being held pursuant to the trusts and powers of this Trust.

b.           clause 1(10B) - which provides a new definition of the term 'Asset Sub-Trust Assets' as:

the part of the Trust Fund which are made subject of an Asset Sub-Trust and includes all income derived from such assets, accumulation of such income, accretion to such assets and the reinvestment of the sale proceeds of such assets as well as investments and property paid or transferred to and accepted by the Trustee of any Asset Sub-Trust as additions to Trust Fund. In all respects the Asset Sub-Trust Assets will continue to form part of the Trust Fund of the Trust but subject to separate management by virtue of clauses 20A, 20B, 20C and 20D.

c.            clause 20A - which provides:

THE Appointor may:

(a) appoint a separate trustee in respect of separate assets of the Trust Fund to establish an Asset Sub-Trust;

(b) remove a trustee appointed in respect of an Asset Sub-Trust and appoint another trustee in their place; and

(c) appoint one or more additional trustees to any Asset Sub-Trust in respect of which a separate trustee has been appointed.

d.           clause 20B - which provides:

In relation to any Asset Sub-Trust, the provisions of this clause apply separately in relation to each such appointment, such that:

i.             an Appointor may appoint and remove a trustees of an Asset Sub-Trust without altering the appointment for the remainder of the Trust Fund;

ii.            an Appointor may appoint their successor for the purposes of this clause in respect of an Asset Sub-Trust, without impacting any other parts of the Trust Fund; and

iii.          an Appointor may appoint different successors for each Asset Sub-Trust.

e.           clause 20C - which provides:

In relation to any Asset Sub-Trust, the provisions of this clause apply separately in relation to each such appointment, such that:

i.             a Guardian may appoint and remove a guardian of an Asset Sub-Trust without altering the Guardian for the remainder of the Trust Fund;

ii.            a Guardian may appoint their successor for the purpose of this clause in respect of an Asset Sub-Trust, without impacting any other parts of the Trust Fund; and

iii.          a Guardian of a particular Asset Sub-Trust may appoint different successor guardians for each Asset Sub-Trust.

f.             clause 20D - which provides:

In relation to any Asset Sub-Trust created in the exercise of the Appointor's powers pursuant clauses 20A and 20B, on and from the date of such exercise:

i.             the Trustee of the assets comprising of the Trust Fund will only have a right of indemnity against those assets of the Trust Fund that are not Asset Sub-Trust Assets;

ii.            the Trustee indemnifies and releases the trustee of any Asset Sub-Trust so appointed from any claims and its rights of indemnity it may have in respect of the Asset Sub-Trust Assets for any liabilities incurred on or after the date the trustee of the Asset Sub-Trust is appointed;

iii.          the trustee so appointed in respect of the Asset Sub-Trust will:

i.             only have a right of indemnity against those assets which form part of the Asset Sub-Trust on and from the date of their appointment;

ii. will indemnify and release the Trustee from any claims and its rights of indemnity it may have in respect of the assets of the Trust Fund that do not form part of the Asset Sub-Trust to which the trustee is so appointed;

iv.          where more than one Asset Sub-Trust is established:

i.             the trustee appointed in respect of the Asset Sub-Trust will only have a right of indemnity against those specific assets which form the Asset Sub-Trust pursuant to which the respective trustee is appointed as trustee;

ii. the trustee of each respective Asset Sub-Trust will indemnify and release each other trustee of an Asset Sub-Trust and the Trustee from any claims and its rights of indemnity in respect any assets of the Trust Fund or assets of another Asset Sub-Trust to which the respective trustee has not been appointed trustee.

24.        The Deed of Variation provides at clause 3 that, should any of the provisions in the Deed result in a resettlement of the Green Trust, those provisions will not be valid and have no effect.

Executed Deed of Appointment

25.        As part of the arrangement, a Deed of Appointment was executed during the year ended 30 June 20XX, such that:

a.           Green Pty Ltd has retired as trustee over certain assets of the Trust Fund, being 20 Blue Pty Ltd (Blue) shares acquired by Green Pty Ltd as trustee of the Green Trust in 2005.

b.           Flower Pty Ltd (Flower) has been appointed as the sole trustee for the BG Sub-Trust Assets, being 10 of the 20 aforementioned Blue shares (referred to as the BG Trustee)

i.             Flower was incorporated in 2001. Ben Green is the sole shareholder of the company. Ben and his spouse are the directors of Flower.

c.            Tree Pty Ltd (Tree) has been appointed as the sole trustee for the CG Sub-Trust Assets, being 10 of the 20 aforementioned Blue shares (referred to as the CG Trustee).

i.             Tree was incorporated in 1990. Clare Green and her spouse are the directors and joint shareholders of the company.

d.           the Appointor has appointed, pursuant to clause 20B of the Trust Deed (as amended):

i.             Ben Green as the Appointor's successor in respect of the BG Asset Sub-Trust Assets, and

ii.            Clare Green as the Appointor's successor in respect of the CG Asset Sub-Trust Assets.

e.           the Appointor remains the Appointor in respect of all the remaining assets that do not comprise of the BG Sub-Trust Assets and the CG Sub-Trust Assets

f.             immediately after the appointment of Ben Green and Clare Green as the Appointor's successors in relation to the respective Asset Sub-Trust Assets (detailed in sub-subparagraphs 25.d.i and 25.d.ii), the Appointor resigned as appointor in respect of the BG Sub-Trust Assets and the CG Sub-Trust Assets.

g.           the Guardian has appointed, pursuant to clause 20C of the Trust Deed (as amended):

i.             Ben Green as the Guardian's successor in respect of the BG Asset Sub-Trust Assets, and

ii.            Clare Green as the Guardian's successor in respect of the CG Asset Sub-Trust Assets.

h.           the Guardian remains the Guardian over all assets of the Trust Fund excluding the BG and CG Asset Sub-Trusts Assets, and

i.             immediately after the appointment of Ben Green and Clare Green as the Guardian's successors in respect of the respective Asset Sub-Trust Assets (detailed in sub-subparagraphs 25.g.i and 25.g.ii), the Guardian immediately resigned as guardian in respect of the BG Sub-Trust Assets and the SP Sub-Trust Assets.

Assumptions

None

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-55

Income Tax Assessment Act 1997 subsection 104-55(1)

Income Tax Assessment Act 1997 subsection 104-55(2)

Further issues for you to consider

Nil.

Anti-avoidance rules

N/A

Reasons for decision

26.        Subsection 104-55(1) of the ITAA 1997 provides that CGT event E1 happens when a trust is created over a CGT asset by declaration or settlement. Pursuant to subsection 104-55(2), the CGT event happens at the point in time the trust is created. Therefore, in order for CGT event E1 to occur, it is required that there be both the creation of a trust and that this be done by way of declaration or settlement.

27.        The phrase "you create a trust over a CGT asset" is to be understood by reference to the general law of trusts.

28.        In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties Hope JA analysed the 'very nature of a trust' in terms of a personal obligation of a trustee annexed to property to hold the property for the benefit of another.

29.        In order to 'create' a trust, there must be a creation of both elements of a trust; that is, a creation of personal obligations and a creation of rights annexed to property.

30.        Notwithstanding that an existing trust estate may not have come to an end and the entirety of the trust fund settled on terms of a new trust, it is possible for assets to be settled on a new trust estate that has been separated from (or carved out of) the original trust fund. This may occur notwithstanding that the transactional documents executed to effect such a separation do not expressly speak of the asset having been settled on a new trust.

31.        The decision of the Supreme Court of South Australia in Dyda P/L & Anor v Commissioner of State Taxation (Dyda), albeit concerned with a different legislative tax regime, is instructive in this context.

32.        In Dyda the Supreme Court of South Australia considered whether a series of steps to transfer control of a real property to the Dyda group gave rise to a stamp duty liability. The land in question was held in a unit trust, the Woodville Property Trust. Units in this trust were held by two family trusts, the Meeuwissen Family Trust and the Young Family Trust.

33.        The transfer of the control of the real property was effected through a series of steps. First Dyda Pty Ltd was appointed as trustee of the part of the trust assets of the Woodville Property Trust which comprised the real property. This part of the trust was to be known as the Burleigh Avenue Trust. The trust deed was amended to allow for a new type of units, funding units, which could receive income in priority to all existing units. Dyda Nominees was appointed as trustee to part of the Meeuwissen Family Trust comprising 1 ordinary unit in the Burleigh Avenue Trust. This was henceforth known as the Burleigh Avenue Trust No. 2. John Dyda was also made guardian and appointor of the Burleigh Avenue Trust No. 2. Similarly, Dyda Nominees was appointed as trustee to part of the Young Family Trust comprising 1 ordinary unit in the Burleigh Avenue Trust. This was henceforth known as the Burleigh Avenue Trust No. 3. John Dyda was also made guardian and appointor of the Burleigh Avenue Trust No. 3.

34.        The appellants argued that upon appointment of the new trustee, no rights were conferred in relation to the trust property. The rights remained as they were because the same persons remained objects and beneficiaries of the discretionary trusts.

35.        Stanley J rejected the arguments of the appellants. At paragraphs [143] - [144] he concluded as follows:

143. The appointment of Dyda Nominees as trustee of the Burleigh Avenue Trust No. 2 and No. 3, was in each case, effectively the resettlement of the units under a new trust rather than the appointment of a new trustee to existing trusts. The requisite continuity of the trust did not exist.

1.44 The continuity of trusts was broken because of the transfer of control of these two discretionary trusts to the Dyda group, which occurred on 8 March 2007. This was achieved by the appointment of Dyda Nominees as the trustee, and by the appointment of John Dyda as the appointor and guardian under the trusts. In his capacity as guardian, John Dyda could control the distributions of some income and of all of the capital of the trusts. A member of the class of potential beneficiaries of the trusts who was not a member of the Dyda group could not realistically expect ever again to receive any distributions under the trusts. This conclusion is reinforced by the granting of the indemnities. Accordingly, Dyda Nominees acquired an absolute interest in the ordinary units.

36.        Dyda demonstrates that the appointment of different trustees and appointors over specific trust assets can in particular circumstances cause those assets to be settled on terms of a new trust.

By declaration or settlement

37.        The second element necessary for CGT event E1 to happen is that the creation of the trust is by declaration or settlement.

38.        A trust is created by declaration within the meaning of subsection 104-55(1) when it is created by words or conduct sufficient to demonstrate an intention to create an express trust over property. Transactional documentation that evidences an express intention to hold the transferred assets subject to the terms of the trust deed, may suffice to create a trust over those assets by declaration.

39.        A trust is created by settlement when property is vested in a trustee for the benefit of others. A transfer of existing trust property to, and the vesting of this property in, a new trustee for the benefit of others can satisfy the description of the creation of a trust by settlement.

Application to your circumstances

Question 1

Do the variations to the Trust Deed of the Green Trust cause CGT event E1 to happen pursuant to section 104-55?

40.        Clause 19 of the Trust Deed provides the trustee with the power to revoke, add to, or vary the Green Trust's terms (subject to certain restrictions) with the consent of the Guardian.

41.        The Commissioner accepts that the Deed of Variation is supported by the powers given to the trustee under clause 19 of the Deed.

42.        As explained in paragraph 23, the first step in your arrangement was to vary the Trust Deed of the Green Trust to broadly provide for the:

a.           definition of the term 'Asset Sub-Trust'

b.           definition of the term 'Asset Sub-Trust Asset'

c.            the appointment and removal of separate trustees over Asset Sub-Trusts

d.           the appointment of separate Appointors and successor Appointors for Asset Sub-Trusts

e.           the appointment of separate Guardians and successor Guardians for Asset Sub-Trusts, and

f.             limitation of each Trustees' right of indemnity against those assets for which it holds in its capacity as trustee.

43.        The above amendments to the Trust Deed of the Green Trust in themselves do not result in a new trust relationship arising. They are a necessary step to enable the future creation of separate 'Asset Sub-Trusts', the assets allocated to which are held by separately appointed trustees. However the amendments, without more, merely allow for the future creation of such Sub-Trusts; they do not demand such Sub-Trusts will be created.

44.        In the absence of an exercise of the power to create an Asset Sub-Trust, the amendments to the Deed will not, in and of themselves, create new personal obligations or new rights annexed to property. Consequently, the mere amending of the deed will not cause CGT Event E1 to happen.

Questions 2 and 3

Does the appointment of the 'BG Trustee' and the 'CG Trustee' over their respective Asset Sub-Trust assets cause CGT event E1 to happen pursuant to section 104-55?

Does the appointment of Ben Green and Clare Green respectively as Appointor and Guardian over those Asset Sub-Trust assets cause CGT event E1 to happen pursuant to section 104-55?

45.        New clause 1(10A) to the Trust Deed introduces a new definition of "Asset Sub-Trust": a sub-trust which is established when a separate trustee is appointed to specific assets of the Green Trust.

46.        New clause 1(10B) creates a new definition of "Asset Sub-Trust Assets" namely a part of the Trust Fund which is made subject of an Asset Sub-Trust. This definition states that the Asset Sub-Trust Assets will continue to form part of the Trust Fund albeit 'subject to the separate management' by virtue of clauses 20A to 20D.

47.        The trusts and powers contained within the Trust Deed refer to the defined term "Trust Fund". However, it is apparent from the insertions to the Deed that each trustee of an Asset Sub-Trust will only have responsibilities, powers and rights to be indemnified in respect of trust assets actually held and controlled by them being the assets allocated to the Sub-Trust in respect of which they are the trustee. Therefore, it is necessary at the least to read the term "Trust Fund" as contained in many of the clauses of the Deed, as a reference to those trust assets held by each trustee separately. Any other reading of this term in the Deed could not co-exist with the express intention that the Trust Deed apply to each trustee of an Asset Sub-Trust individually.

48.        Moreover, this interpretation of the Deed is necessary to achieve the desired outcome of the arrangement. That is, to allow the trustee of one sub-trust the sole authority, consistent with the wishes of the sub-fund's guardian, to determine how to distribute the income of the trust fund independently and without the approval from the other sub-trust trustee or guardian.

49.        As a result of the execution of the Deed of Appointment, the following has been achieved:

a.           the removal of HT Green Pty Ltd as Trustee in respect to 20 Blue shares

b.           the appointment of BG Trustee over the BG Sub-Trust Assets comprising 10 Blue shares

c.            the appointment of Ben Green as the Appointor's successor over the BG Asset Sub-Trust Assets

d.           the appointment of Ben Green as the Guardian's successor over the BG Asset Sub-Trust Assets

e.           the appointment of CG Trustee over the CG Asset Sub-Trust Assets comprising 10 Blue shares

f.             the appointment of Clare Green as the Appointor's successor over the CG Asset Sub-Trust Assets

g.           the appointment of Clare Green as the Guardian's successor over the CG Asset Sub-Trusts Assets

h.           the removal of the pre-existing Appointor over the BG Asset Sub-Trust Assets immediately after the appointment of Ben Green as the Appointor's successor

i.             the removal of the pre-existing Guardian over the BG Asset Sub-Trust Assets immediately after the appointment of Ben Green as the Guardian's successor

j.             the removal of the pre-existing Appointor over the CG Asset Sub-Trust Assets immediately after the appointment of Clare Green as the Appointor's successor, and

k.            the removal of the pre-existing Guardian over the CG Asset Sub-Trust Assets immediately after the appointment of Clare Green as the Guardian's successor.

50.        The effect of these appointments is that the trust fund has been functionally split into three distinct parts, the BG Asset Sub-Trust controlled by Ben Green (Flower as trustee holding 10 Blue shares), the CG Asset Sub-Trust controlled by Clare Green (Tree as trustee holding 10 Blue shares) and the remaining assets that formed part of the trust fund of the Green Trust that continue to be controlled by Jane Green.

51.        Green Pty Ltd continues to hold the remaining assets in its trustee capacity and Jane remains the Appointor and Guardian under the trust over those remaining assets.

52.        The appointment of the BG Trustee and CG Trustee over the BG Asset Sub-Trust Assets and CG Asset Sub-Trust Assets and associated changes (including appointment of separate guardians and appointors, and ring-fencing of the assets to which each trustee may look in order to satisfy their respective rights to be indemnified) fundamentally changes the circumstances pertaining to those assets.

53.        To focus on the BG Asset Sub-Trust, the effect of the changes is that Flower will be able to administer that Sub-Trust (in the sense of exercising its powers and obligations in respect of the 10 Blue shares constituting the BG Asset Sub-Trust Assets) independently of how the CG Asset Sub-Trust is administered. Moreover, it can be inferred that the intent is that this is how the Sub-Trust will in fact be administered. This observation is consistent with the 10 Blue shares having been settled on terms of a new trust. Likewise with the 10 Blue shares that are now held by Tree as the CG Asset Sub-Trust Assets in its capacity as trustee of the CG Asset Sub-Trust.

54.        Jane currently collects the majority of income from the Trust. You state that Jane Green wishes for the respective families of Ben Green and Clare Green to jointly share the benefits of the existing trust after her passing. You further state that Ben and Clare have different risk appetites and, consistent with this, the stated objective for the arrangement is to enable the quarantining of the risks associated with Clare and Ben's respective investment decisions. The Deed of Variation and Deed of Appointment are consistent with these objectives. They ensure that the BG Assets Sub-Trust Assets and the CG Assets Sub-Trust Assets are solely within the control of Ben (and his spouse) and Clare (and her spouse) respectively.

55.        At this point in time, the vast majority of assets of the original Trust will not be affected by the changes proposed. Consistent with this, it could be expected that the income from these assets will continue to be dealt with in a similar manner to past years in the immediate future. However, given the changes to control of the assets transferred to Ben Green and Clare Green, and the stated objective of quarantining the risks arising from the different investment decisions of Ben and Clare in respect to those assets, it is apparent that it is intended that Ben and Clare will use their control of any assets which are transferred to the "Asset Sub-Trusts" to benefit their respective families. If the assets of the original trust continue to be transferred to the respective "Asset Sub-Trusts", it similarly could be concluded that it is intended that these are now being transferred for the benefit of the families of Ben and Clare respectively. Any other conclusion would not be consistent with the stated objectives of the arrangement.

56.        The circumstances outlined above lead to the conclusion that the trust powers and discretions vested in the original and new trustees have purposes distinct from each other, notwithstanding that they are contained within the same trust deed and are on identical terms. These distinct purposes could be expected to be recognised and given effect to by a court in the event that a disappointed beneficiary attempted to raise an action against a trustee.

57.        You state that the trustees will still continue to prepare consolidated financial statements and that each trustee will sign off on the accounts. This fact is not inconsistent with the conclusion reached that each Asset Sub-Trust constitutes a separate trust: such consolidation nearly presupposes the new trustees, in exercise of their separate powers, will first have determined the income of the Sub-Trust in respect of which they are trustee and how that income is to be distributed.

58.        For the reasons to those expressed above, the appointment BG Trustee and CG Trustee as trustees, and Ben Green and Clare Green as successor Appointors and successor Guardians of the BG Assets Sub-Trust and CG Assets Sub-Trusts respectively, has resulted in those assets being held subject to new charters of rights and obligations consistent with the assets being held on the terms of a new trust. Further, as the these new trusts are created by the transfer of the assets to, and the vesting of this property in, the BG Trustee and the CG trustee for the benefit of others, this resulted in the creation of a new trust by settlement. Consequently, the deed of appointment will trigger CGT event E1 pursuant to section 104-55.

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