Edited version of private advice

Authorisation Number: 1051998275825

Date of advice: 29 June 2022

Ruling

Subject: Trusts and CGT events

Question 1

Will CGT Event A1 in section 104-10, CGT Event E1 in section 104-55, CGT Event E2 in section 104-60 or CGT Event H2 in section 104-155 of the Income Tax Assessment Act 1997 (ITAA 1997) happen:

(a)  on the appointment of any of the New Trustees respectively?

(b)  if an additional director is appointed to the Second New Trustee of the Children's Trust Part 2?

(c)   if the Existing Trustees are appointed as new Appointors of the Children's Trust Part 1 and/or of the Children's Trust Part 3

(d)  on the transfer of assets of the Children's Trust to each New Trustee of the Children's Trust's Part 1, 2 and 3 respectively?

(e)  as a consequence of all of the forgoing occurring?

Answer

No

Question 2

If the answer to Question 1 is no, does CGT Event I2 in section 104-170 of the ITAA 1997 happen on the appointment of a New Trustee to the Children's Trust Part 2 with an additional Director who is a foreign resident?

Answer

No

Question 3

Does any other CGT Event happen:

(a)  on the appointment of any of the New Trustees respectively?

(b)  if an additional director is appointed to the Second New Trustee of Children's Trust Part 2?

(c)   if the Existing Trustees are appointed as new Appointors of the Children's Trust Part 1 and/or of the Children's Trust Part 3

(d)  on the transfer of assets of the Children's Trust to each New Trustee of Children's Trust's Part 1, 2 and 3 respectively?

(e)  as a consequence of all of the forgoing occurring?

Answer

No

Question 4

Is a new trust estate created for the purposes of Division 6 of Part Ill of the Income Tax Assessment Act 1936 in respect of any assets of the Children's Trust being held by any of the New Trustees, subject to the terms of the Deed:

(a)  on the appointment of any of the new Trustees respectively?

(b)  if the Existing Trustees are appointed as new Appointors of the Children's Trust Part 1 and/or of the Children's Trust Part 3

(c)   on the transfer of assets of the Children's Trust to each New Trustee of the Children's Trust's respectively?

(d)  as a consequence of all of the forgoing occurring?

Answer

No

This ruling applies for the following period:

Years ended 30 June 20XX to 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Background

The Children's Trust

1.    The Children's Trust was constituted by Deed. Individuals that are not beneficiaries of the Children's Trust are the Trustees of the Children's Trust (Existing Trustees). The Existing Trustees are both residents of Australia. The Trust was created by the settlement of the sum of ten dollars ($X) by the Settlor on the Trustee.

2.    The Children's Trust is a discretionary trust allowing for the appointment of the income and capital of the trust to a class of persons described in the deed as the Income Beneficiaries and Capital Beneficiaries (they are the same) on the terms and conditions set out in the Deed.

3.    The Trust Fund means the settlement fund ($X) and any money paid and other property transferred to the Trustee and accepted as additions to the Trust Fund and all or part of any investments and property representing the Trust Fund.

4.    The beneficiaries of the Children's Trust are the children of an individual (the Parent). The Parent is not an Existing Trustee.

5.    The Parent recently died and at the time of their death they were not a resident of Australia for tax purposes.

6.    The children of the Parent are called the Designated Persons in the Deed and are Income and Capital Beneficiaries. Also included in the definition of Income Beneficiaries and Capital Beneficiaries are other individuals and entities including (in summary):

•         each child of the Designated Person;

•         any trust in which any of the Designated Persons or their children are present or future beneficiaries;

•         any corporation in which any shares or capital is beneficially owned by any of the foregoing;

•         any unit trust in which any of the units is or will be held by the Trustee upon the trusts set out in the Deed or is beneficially owned by any of the foregoing;

•         a University; and

•         any person, corporation or association whom the Trustee considers worthy of funds either for charitable, educational benevolent and similar purposes.

7.    The Children's Trust was originally expected to provide initially for the education of the Designated Persons and more generally their benefit.

8.    The Deed provides that the Parent is during their life the Appointor of the Trust (Appointor) and Appointor may also include:

(a)  any person nominated in writing as appointor by the Appointor;

(b)  if there is a sole appointor, any person nominated as appointor in the Will of the Appointor;

(c)   if there is more than one appointor, any person nominated as appointor in the will of the last surviving appointor;

(d)  if there is no person nominated in the will of the Appointor, or if there is more than one appointor and no person nominated in the will of the last surviving Appointor then the trustees jointly may nominate a person to be an Appointor.

(e)  any person who is the attorney of the Appointor pursuant to an Enduring Power of Attorney whilst the appointor lacks the capacity to Act.

9.    Pursuant to their Will, the Parent nominated their spouse to be the Appointor. Their spouse is a foreign resident.

10.  The Trust Fund and its administration are vested in the Trustees.

11.  Various provisions of the Deed require the Trustees to seek the prior written consent of the Appointor as a condition of the exercise of the power, including those described below.

12.  The Trustees may with respect to the Distributable Income (as defined) of the Accounting Period, determine whether:

•         to pay, apply or set aside to or for any one or more of the Income Beneficiaries living or in existence at the time of the determination in such proportions and in such manner as the trustee thinks fit; or

•         to accumulate it.

if the Trustees do not distribute the Distributable Income before the end of 30 June, the undistributed income will be accumulated.

13.  Various rules apply to aforementioned determinations including:

•         that a determination to pay apply or set aside income may exclude any Beneficiary and be in the proportions that the Trustees think fit.

•         accumulation of income is an accretion to the Trust Fund but the Trustees may at any time pay or apply the accumulations as if they were Distributable Income.

14.  The Trustees may at any time prior to the Vesting Day determine to pay out or apply the capital of the Trust Fund or any part of it to or for the benefit of any one or more of the Capital Beneficiaries in such proportions and in such manner as it thinks fit.

15.  Any distribution may be done in specie.

16.  From the Vesting Day, the Trustees hold the Trust Fund upon trust to use at their discretion for the benefit of any Capital Beneficiary who is alive or in existence on the Vesting Day. If there is no such Capital Beneficiary, then the Trustees hold the Trust Fund on Trust for any person who on the Vesting Day would be entitled to the intestate estate of the Capital Beneficiary under the relevant law. If there is no such person entitled, then the Trustees hold the trust fund for charitable purposes.

17.  Powers requiring consent of the Appointor include the powers conferred on the Trustees to determine the Vesting Day provided it is earlier than the eightieth anniversary of the Deed, to lend money, to borrow money, to give security for payment of money, to give a guarantee and secure a guarantee, to vary a security, to give security for a bank account, and to allocate income and capital from particular classes/categories/sources.

18.  Subject to the prior written consent of the Appointor, the Trustees may by deed cancel, add to, or vary any of the provisions of the Deed. Such variation must not infringe the law against perpetuities, result in a benefit to the Settlor or Trustees, or effect the beneficial entitlement of any Beneficiary which existed before the date of cancellation, addition or variation.

19.  A Trustee may be removed or appointed by a written document made by the Appointor. The Settlor cannot be appointed as a trustee.

Assets and liabilities of the Children's Trust

20.  The assets of the Children's Trust are primarily shares in private companies connected to businesses conducted principally by the Parent's family.

21.  The Children's Trust also holds shares in various public companies listed on the ASX.

22.  The primary income of the Children's Trust is dividends received from its investments in these companies. It also receives dividends from its holdings in the ASX listed shares and small amounts of interest and capital gains.

Other relevant facts

23.  The Trustee made a family trust election in a previous financial year and the Parent is the specified individual.

The proposed transactions

24.  The proposed transaction is part of the succession plan of the Parent.

25.  The fund is to be split into three parts. Three new companies have been incorporated in Australia, each to act as the new trustee of one of the three parts (New Trustees). The three parts are referred to as Children's Trust Part 1 (first part), the Children's Trust Part 2 (second part) and the Children's Trust Part 3 (third part).

26.  It is expected that ultimately, three eights of the current value of the fund will be distributed to the eldest children of the Parent having regard to their age and position and circumstances in life. This distribution will be a proportionate share of the assets of the Children's Trust. This distribution will trigger CGT consequences and will be returned for income tax purposes. Assets of the fund have been realised for this purpose.

27.  The remaining five eights of the fund is to be split into three parts.

28.  It is expected the first part will provide for some of the Parent's children. These are children with a former spouse. It was the Parent's intent that a distinct part of the fund be available at some point to provide for these children. Before their death, the Parent intended to continue to hold the power of appointment over this part (which includes a power to appoint and remove the trustees and also to consent to the exercise of the Trustee's discretion over certain items set out in the Deed). It is possible that the Existing Trustees may become the new Appointors of this part.

29.  The second part is expected to provide primarily for children of the Parent and their Spouse. It is expected that their Spouse will remain the Appointor of that part.

30.  The third part is to be held for more general application. It is possible that the Existing Trustees may become the new Appointors of that part.

31.  To some extent part of original fund that is intended for each of the eldest beneficiaries may in the interim be held by the Existing Trustees in the original fund until the New Trustees are appointed and the three parts are established with allocation of assets and, after the New Trustees are appointed and the three parts are established, will be held by the New Trustee of the Third Part until the distributions to the eldest children can occur.

32.  The range of potential beneficiaries entitled to benefit from the trust fund as a whole will not change.

33.  The Existing Trustees are the directors and shareholders of each of the New Trustees. Directors will have equal rights in respect of decision making.

34.  The Parent's spouse has been appointed as an additional director of the New Trustee for the Children's Trust Part 2.

35.  The accounting and tax reporting for all three parts will be on a consolidated basis.

Deed of Variation #1

36.  The following changes have been made in a previous year pursuant to the Deed of Variation #1.

37.  A new clause defines "Trust Deed" to mean "this deed constituting the Children's Trust as modified, added to or varied from time to time".

38.  The clauses dealing with the power to appoint new trustees include express powers to appoint a new trustee of parts of the property of the Trust, as follows:

You have provided relevant clauses of your agreement which detail the obligations of the parties.

39.  Clauses were replaced to enable an appointor to be appointed in respect of part of the Trust Fund, for example the Deed will provide that the Appointor will include:

You have provided relevant clauses of your agreement which detail the obligations of the parties.

40.  A clause which allows the Trustee to appoint a trustee in any country and transfer part of the Trust Fund to that trustee will be varied to:

You have provided relevant clauses of your agreement which detail the obligations of the parties.

41.  Clause X in paragraph X above of the Deed of Variation is included to provide greater flexibility. The appointor and/or the trustees may at some stage in the future wish to separate or de-aggregate from the requirements in the proposed clauses X that the trustees act together. Clause X is intended to facilitate that de-aggregation.

Proposed Deeds of Appointment of New Trustee of Part of the Children's Trust

42.  The background to each draft/proposed Deed of Appointment of New Trustee of Part of the Children's Trust (Deed of Appointment)states that:

You have provided relevant clauses of your agreement which detail the obligations of the parties

43.  Each such Deed of Appointment provides (in summary):

•         that the Appointor appoints the New Trustee to be the Trustee of the property described in the Schedule and hereafter to be known as the Children's Trust Part (appropriate part number is to be referred to);

•         the New Trustee consents to the appointment (clause X);

•         that the Appointor declares and directs that all the estate and interest of the Existing Trustees in those parts of the property described in the Schedule shall vest in the New Trustee upon the trusts affecting the same respectively by virtue of the Trust Deed as varied (Vesting Declaration - clause X);

•         the Existing Trustees agree to transfer to the New Trustee all other investments and property as described in the Schedule to be held by the New Trustees (clause X);

•         the Appointor and the New Trustee agree and declare that the New Trustee shall hold the property vested in it by virtue of the vesting declaration and also the said property being transferred to it upon the trusts and with and subject to the trusts powers and provisions declared and contained in the Deed as varied and subject to such of the said trusts powers and provisions as are now subsisting and capable of taking effect;

•         the New Trustee hereby indemnifies and agrees to keep indemnified the Existing Trustees from and against the debts and obligations described in the Schedule (if any) to the extent of the assets of the Trust vested in it by virtue of the Vesting Declaration and also the said property being transferred to it.

•         that the Appointor declares, pursuant to clause X, that Clause X of the Deed as varied applies to the Children's Trust Part (appropriate part number is to be referred to).

44.  Each such Deed of Appointment may provide:

The Appointor in exercise of the power of appointing a separate Appointor vested in [them] by clause [xx] of the Trust Deed as varied in respect of the Children's Trust Part [appropriate part number to be inserted] appoints [X] to be the Appointor in [their] place in respect of the Children's Trust Part [appropriate part number to be inserted].

45.  The inclusion of the above provision in any Deed is subject to the matters described above at paragraphs X and X.

Deed of Variation of Trust 20XX#X/i>

46.  This Deed of Variation of Trust 20XX#X provides for the variation of clauses that provides for maintaining, classification and allocation of income to one or more separate accounts and permits the Trustee to stream income and capital (from a class, source or category), in its character, to a beneficiary.

Reasons for Decision

Question 1

Summary

1.     CGT Event A1 in section 104-10, CGT Event E1 in section 104-55, CGT Event E2 in section 104-60 and CGT Event H2 in section 104-155 of the Income Tax Assessment Act 1997 (ITAA 1997) will not happen in the circumstances described in Question 1.

Detailed reasoning

CGT Event E1

2.     CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement (section 104-55 of the ITAA 1997).

3.     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.[1]

4.     The phrase "you create a trust over a CGT asset" is to be understood by reference to the general law of trusts.[2]

5.     In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties[3] 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.[4]

6.     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.

7.     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[5], 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.[6] This may occur notwithstanding that the transactional documents executed to affect such a separation do not expressly speak of the asset having been settled on a new trust.

8.     The decision of the Supreme Court of South Australia in Dyda P/L & Anor v Commissioner of State Taxation[7] (Dyda), albeit concerned with a different legislative regime, is instructive in this context.

9.     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.

10.  The transfer of the control of the real property was affected 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.

11.  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.

12.  Stanley J rejected the arguments of the appellants. At paragraphs [143] - [144] he concluded as follows:[8]

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.

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

14.  The Commissioner's view on the potential capital gains tax implications of a 'trust split' is contained in 'TD 2019/14. For this determination, a trust split is defined as an arrangement which generally involves the transfer of some of the assets of the original trust to a new trust fund that has been separated, or carved out of, the original trust fund.[9] The purpose of such arrangements is directed to separating the functional operation of the trust. It is put into place with the intention of:

(a)  separating those who control and can benefit from part of the trust corpus transferred to the new trustee from those who control and benefit from the remaining assets held by the original trustee

(b)  removing the fiduciary obligations of the original trustee in relation to the assets transferred to the new trustee

(c)   removing the entitlement of the original trustee to be indemnified out of the transferred assets for expenses incurred after the introduction of the new trustee, and

(d)  ensuring that the new trustee will have no fiduciary obligations in respect of the assets retained by the original trustee and will have no right to be indemnified from those assets.[10]

15.  Example 2 in TD 2019/14 isillustrative of a scenario that the Commissioner does not conclude is a 'trust split' as described in the Determination. In the circumstances in that example, the arrangements are designed to enable one of the family members to take greater responsibility for part of the business of the trust and administration of that part of the fund, however:

•         the identity of those who controlled the existing trustee remains unchanged;

•         all beneficiaries are entitled and expected to benefit from the trust as whole;

•         the amended trust deed:

o   requires all trustees to act together in respect of decisions that one trustee reasonably believes requires agreement of all the trustees, including selecting an accountant to prepare the tax return, incurring joint expenses, amending the trust deed; and changing the vesting date;

o   when making decisions to distribute the net income of the fund, the trustees of each part are required to take account of the losses incurred by the other parts of the trust fund and expenses of the trust as a whole;

o   gives each trustee recourse to all of the trust assets where the assets held by that trustee are insufficient to fully satisfy its right to be indemnified.

•         each trustee keeps separate accounts in respect of the assets they hold, but the results are consolidated for the entire trust fund and a single tax return is prepared for the trust as a whole.

By declaration or settlement

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

17.  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.[11] 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.

18.  A trust is created by settlement when property is vested in a trustee for the benefit of others.[12] 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.[13]

Application to your circumstances

19.  In order to determine whether CGT event E1 happens, it is necessary to consider whether the proposed steps would have the effect of creating a trust over a CGT asset by declaration or settlement (subsection 104-55(1)).

20.  The question under consideration is not whether the Children's Trust will come to an end, but whether the assets transferred to the New Trustees are settled on a new trust fund that is separate and distinct from the existing Children's Trust.

21.  The proposed arrangements are distinguishable from the trust splitting arrangements of the kind described in TD 2019/14.

22.  Although each of the three parts of the fund will have a new and distinct corporate trustee these trustees will all be bound by the terms of proposed new clauses of the Deed that:

•         requires all trustees to act together in respect of decisions that one trustee reasonably believes requires agreement of all the trustees, including selecting an accountant to prepare the tax return, incurring joint expenses, amending the trust deed; and changing the vesting date;

•         requires the trustees of each part, when making decisions to distribute the net income of the fund, to take account of the losses incurred by the other parts of the trust fund and expenses of the trust as a whole;

•         gives each trustee recourse to all of the trust assets where the assets held by that trustee are insufficient to fully satisfy its right to be indemnified.

23.  Further, the tax reporting and accounting for all three parts will be on a consolidated basis.

24.  Considering these elements together with the other elements of the proposed arrangement and the circumstances prevailing at the time that these arrangements will be entered into, it cannot be concluded that the assets to be transferred to the New Trustees have been subjected to a new charter of personal obligations and rights.

25.  We conclude that the Children's Trust will continue as one trust albeit with three separate trustees in respect of the three parts of the trust fund.

26.  Consequently, the elements of subsection 104-55(1) will not be satisfied and CGT event E1 will not happen.

CGT Event A1

27.  CGT event A1 happens if you dispose of a CGT asset (section 104-10 of the ITAA 1997).

28.  Subsection 104-10(2) provides that you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. A change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. Further, as stated in the note to subsection (2), a change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust. This means that CGT event A1 will not happen merely because of a change in the trustee.

29.  In this case, when the CGT assets are transferred to the New Trustees there will be a change in the ownership of those assets at law (that is, another legal entity will have the legal rights to deal with the assets subject to the terms of the Children's Trust). However, as concluded above, the assets are still held under the same trust albeit by three new trustees in respect of the three parts of the trust fund. There is no change in the entity that is the trustee of the trust for tax purposes and thus no change in ownership of the nature required under subsection 104-10(2).

30.  Therefore, CGT Event A1 will not happen.

CGT Event E2

31.  CGT event E2 happens if you transfer a CGT asset to an existing trust (section 104-60 of the ITAA 1997).

32.  As concluded above, the assets will continue to be held under the same trust albeit by three new trustees in respect of the three parts of the trust fund. There is no transfer of assets to an existing trust.

33.  Therefore, CGT Event E2 will not happen.

CGT Event H2

34.  CGT event H2 will only apply to an event where no other CGT event has been applied. It happens if an act, transaction or event occurs in relation to a CGT asset that you own and the act, transaction or event does not result in an adjustment being made to the asset's cost base or reduced cost base: section 104-155 of the ITAA 1997.

35.  We have concluded that the Children's Trust will continue as one trust albeit with three separate trustees in respect of the three parts of the trust fund. None of the parts will be made subject to a separate charter of rights and obligations. Therefore, we conclude that no relevant act, transaction or event has happened in relation to a CGT asset.

36.  Therefore, CGT Event H2 will not happen.

Question 2

Summary

37.  CGT Event I2 in section 104-170 of the ITAA 1997 will not happen on the appointment of a New Trustee to the Children's Trust Part 2 with an additional Director who is a foreign resident.

Detailed reasoning

38.  CGT event I2 happens if a trust stops being a resident trust for CGT purposes: section 104-170 of the ITAA 1997.

39.  If CGT Event I2 is triggered, subsection 104-170(3) provides that the trustee needs to work out if it has made a capital gain or a capital loss for each CGT asset that it owned (in the capacity as trustee of the trust) just before the time of the event except one that is *taxable Australian property covered by paragraphs 104-170(3)(a) and (b).

40.  Section 995-1(1) of the ITAA 1997 contains the following definitions:

resident trust for CGT purposes: a trust is a resident trust for CGT purposes for an income year if, at any time during the income year:

(a)  for a trust that is not a unit trust, a trustee is an Australian resident or the central management and control of the trust is in Australia; or

(b)  ...

Australian resident means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936.

41.  Section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) defines which companies are residents of Australia as follows:

Resident or resident of Australia means:

(a)  ...

(b)  a company which is incorporated in Australia or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

42.  The New Trustees to the three parts of the Children's Trust will be incorporated in Australia. Therefore, the New Trustees will be Australian residents regardless of whether any director is appointed who is a foreign resident. Consequently, the Children's Trust will remain a resident trust for CGT purposes and CGT event I2 will not happen.

Question 3

Summary

43.  No other CGT Events happen in the circumstances described in Question 3.

Reasoning

44.  Question 1 and 2 have comprehensively considered potentially applicable CGT Events. No other CGT Events will happen in the circumstances described in Question 3.

Question 4

Summary

45.  A new trust estate will not be created for the purposes of Division 6 of Part Ill of the ITAA 1936 in respect of any assets of the Children's Trust being held by any of the New Trustees, subject to the terms of the Deed.

Detailed reasoning

46.  For the reasons given in Question 1, we have concluded that the Children's Trust will continue as one trust albeit with three separate trustees in respect of the three parts of the trust fund.

47.  Consistent with that reasoning, we are of the view that a new trust estate will not be created for the purposes of Division 6 of Part Ill of the ITAA 1936in respect of any assets of the Children's Trust being held by any of the New Trustees, subject to the terms of the Deed.

48.  All provisions of Division 6 will apply on the basis that the assets held by the New Trustees are the assets of a single trust estate.

Further issues to consider

49.  In our view, if further changes were to happen in respect to the three parts of the Children's Trust this may cause a CGT Event to occur. For example, a CGT Event may happen if the Appointor of any part invoked Clause F of the Deed (as amended) and/or if control over a part were to be altered in a way that is described in TD 2019/14. If such further changes were to occur, the facts would be materially different from the above facts, and this ruling could not be relied upon in relation to the changes.

[1]The Commissioner's view on whether a 'trust split' arrangement will cause CGT event E1 to happen is set out in Taxation Determination TD 2019/14 Income Tax: Will a trust split arrangement of the type described in this Determination cause a new trust to be settled over some but not all assets of the original trust with the result that CGT event E1 in subsection 104-55(1) of the Income Tax Assessment Act 1997 happens? (TD 2019/14).

[2] FC of T v Bamford (2010) 240 CLR 481 at [36]

[3] [1980] 1 NSWLR 510 at 518-519.

[4] This analysis is similar to that expounded in Jacobs Law of Trusts.

[5] A critical point underlining the decisions in FC of T v Commercial Nominees of Australia Ltd [1999] FCA 1455; [2001] HCA 3 and Commissioner of Taxation v. David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550.

[6] See for example C of SR (Vic) v. Lam and Kym Pty Ltd (2004) 10 VR 420; Oswal v. FC of T [2013] FCA 745.

[7] Dyda P/L & Anor v Commissioner of State Taxation [2013] SASC 156.

[8] [2013] SASC 156 at paragraphs 143 - 144

[9] Taxation Determination TD 2019/14 Income Tax: Will a trust split arrangement of the type described in this Determination cause a new trust to be settled over some but not all assets of the original trust with the result that CGT event E1 in subsection 104-55(1) of the Income Tax Assessment Act 1997 happens? paragraph 36. See for example C of SR (Vic) v Lam and Kym Pty Ltd (2004) 10 VR 420; Oswal v FC of T [2013] FCA 745.

[10] Taxation Determination TD 2019/14 Income Tax: Will a trust split arrangement of the type described in this Determination cause a new trust to be settled over some but not all assets of the original trust with the result that CGT event E1 in subsection 104-55(1) of the Income Tax Assessment Act 1997 happens? paragraph 47

[11] Kafataris v. DC of T (2015) 243 FCR 291 at [26] (Kafataris).

[12] Taras Nominees Pty Ltd v. FC of T (2015) 228 FCR 418 at [5]; Kafataris at [31].

[13] ibid, paragraphs 36 and 37.

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