Edited version of private advice

Authorisation Number: 1052113998591

Date of advice: 23 May 2023

Ruling

Subject: Trust resettlement - amendment to the trust deed

Question 1

Will the proposed Deed of Amendment cause any capital gains tax (CGT) to occur?

Answer

No.

Question 2

Will the proposed Deed of Amendment result in any change in the cost base of the issued units?

Answer

No.

This private ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

In 20XX, the trustee and 3 individuals executed a trust deed establishing the Unit Trust.

The trustee wishes to amend the trust deed in order to satisfy the criteria of a fixed trust under section 3A(3B) of the Land Tax Management Act 1956 (NSW).

No assets are being transferred.

The Unit Trust deed provides power to amend the trust deed in clause XX and XY including the requirement for a special resolution by the unit holders.

The proposed amendments to the Trust Deed will make various changes to meet the criteria of being a 'fixed trust' as required by the Land Tax Management Act 1956 (NSW).

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

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 to beneficiaries as a result of various capital gains tax (CGT) events.

The Commissioner has released Taxation Determination TD 2012/21 (TD 2012/21) which was published as a result of the court case C of T 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.

In this situation, Clause XY of the Deed allows for the Trustee to vary, alter or add to the Trust Deed with the consent of the unit holders.

After reviewing the changes to the Trust Deed contained in the proposed Deed of Amendment, it is considered that the changes to the Trust Deed are within the powers of the Trustee. Therefore, the continuity of the Unit Trust will be maintained for trust law purposes because the proposed changes are within the Trustee's powers contained in the Trust Deed.

In this case it is accepted that neither of the two exclusions mentioned above will apply as a result of the Deed of Amendment being implemented. Therefore, neither CGT event E1 nor CGT event E2 will occur as a result of the implementation of the Deed of Amendment. It is also considered that no other CGT event will occur as a result of the implementation of the Deed of Amendment.

Further, in the circumstances of the case, the execution of the proposed Deed of Amendment will not result in any change to the cost base of the units.

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