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Edited version of private advice
Authorisation Number: 1051988614816
Date of advice: 30 June 2022
Ruling
Subject: CGT - trusts
Question 1
Will CGT event E1 in section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) happen as a result of executing the Proposed Deed of Variation?
Answer
No.
Question 2
Will CGT event E2 in section 104-60 of the ITAA 1997 happen as a result of executing the Proposed Deed of Variation?
Answer
No.
This ruling applies for the following periods:
year ending 30 June 20XX
year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
1. The Trust is a testamentary trust that is binding on the Trustee and all Members.
2. The applicant provided the trust deed.
3. The Proposed Deed of Variation sets out the proposed new terms, conditions and rules of the Trust.
4. The Trust Deed permits the Trustee to amend the terms of the trust.
Relevant legislative provisions
Income Tax Assessment Act 1997
Section 104-55
Subsection 104-55(1)
Section 104-60
Subsection 104-60(1)
Reasons for decision
Subsection 104-55(1) of the ITAA 1997 states 'CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement.' Subsection 104-60(1) of the ITAA 1997 states 'CGT event E2 happens if you transfer a CGT asset to an existing trust.'
In 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? (TD 2012/21) the Commissioner states (at paragraph 1) that in circumstances where the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, CGT event E1 or E2 will not happen unless:
(a) the change causes the existing trust to terminate and a new trust to arise for trust law purposes, or
(b) the effect of the change 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.
As detailed in the facts, the Proposed Deed of Variation proposes to vary the Trust provisions using the variation power in clause 10 of the Trust provisions. For the purpose of the ruling decision, it is assumed that the amendments set out in the Proposed Deed of Variation constitute a valid exercise of the Trustee's amendment power.
On the basis of the assumption and applying TD 2012/21, neither CGT event E1 nor CGT event E2 will happen in relation to the assets of the Trust as a result of the Trustee for Trust varying the Trust provisions, as proposed.
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