Edited version of private advice

Authorisation Number: 1052391009573

Date of advice: 27 May 2025

Ruling

Subject:CGT - events E1 and E2

Question 1

Will CGT event E1 or CGT event E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 happen as a result of making proposed amendments to the Trust Deed of the B Trust?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20YY

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

1.  B Trust (the Trust) was created by deed dated DDMMYY (the original deed). The original deed was amended by deeds dated DDMMYY (together with the original deed, the Trust Deed).

2.  The Trustee of the Trust is Z.

3.  Clause 1(c)(i) of the Trust Deed defines "Beneficiaries" to mean:

(i)          Individual A.

(ii)          Such of the children and grandchildren of Individual B as shall from time to time be living;

(iii)          ...

4.  Individual B is the late parent of Individual A.

5.  Clause 1(d) of the Trust Deed defines the vesting date.

6.  Clause 25 of the Trust Deed provides:

This deed shall be construed and take effect in accordance with the law of the State A which is hereby declared to be the proper law hereof.

7.  Clauses 13(a) and 30 of the Trust Deed provide the Trustee power to amend the deed.

8.  The Trustee is proposing to amend the Trust Deed

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 section 104-60

Income Tax Assessment Act 1997 subsection 104-60(1)

Reasons for decision

1.  Subsection 104-55(1) states 'CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement.'

2.  Subsection 104-60(1) states 'CGT event E2 happens if you transfer a CGT asset to an existing trust.'

3.  The Commissioner's view on the application of subsections 104-55(1) and 104-60(1) is set out 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).

4.  Paragraph 1 of TD 2012/21 states that CGT event E1 and CGT event E2 will not happen where the terms of the 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, 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.

5.  This view was developed in light of the decisions by the Full Federal Court in Commissioner of Taxation v. David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark) and Federal Commissioner of Taxation v. Commercial Nominees of Australia Ltd [1999] FCA 1455; 99 ATC 5115; (1999) 43 ATR 42 (Commercial Nominees). As discussed in paragraph 21 of TD 2012/1:

21. ... as a general proposition, it would seem that the approach adopted by the Full Federal Court in Commercial Nominees, as explained by Edmonds and Gordon JJ in Clark, is authority for the proposition that assuming there is some continuity of property and membership of the trust, an amendment to the trust that is made in proper exercise of a power of amendment contained under the deed will not have the result of terminating the trust, irrespective of the extent of the amendments so made so long as the amendments are properly supported by the power.

6.  Whilst these cases concerned whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying losses, paragraph 24 of TD 2012/21 provides that the Commissioner accepts that the same principles can be applied in determining whether CGT event E1 or CGT event E2 has happened.

7.  Paragraphs 24 and 27 in TD 2012/21 state that a change in the terms of a trust that is made pursuant to the exercise of an existing power (including an amendment to the deed of a trust) will not terminate the trust and will not result in CGT event E1 happening, unless assets originally held as part of the trust property commence to be held under a separate charter of rights and obligations as a result of changes to the terms of the trust such as to give rise to the conclusion that those assets are now held on the terms of a different trust.

8.  Guidance on whether certain amendments made to a trust deed will give rise to a CGT event can also be found in the Examples in TD 2012/21. Examples 3 and 3A present a case where the deed permits extension of the vesting date. They both conclude that the making of the resolution, being a valid exercise of a power of amendment contained within the deed, does not give rise to the happening of a CGT event. Example 3A makes reference to the power not infringing upon the rule against perpetuities.

9.  In the present case, the Trust Deed gives the Trustee the power to amend any of the provisions of the deed at any time before the vesting date, in any manner whatsoever, at the Trustee's absolute discretion, on certain provisos.

10.  It is considered that the proposed amendments will not breach the provisos limiting the Trustee's amendment power under the Trust Deed.

11.  As the amendments will be made under an existing power in the deed, it is considered that the proposed amendments will not cause the Trust to terminate and will not lead to any particular asset being subject to a separate charter of rights and obligations such that an asset would be settled on different trust terms.

12.  In conclusion, on the assumption that the proposed amendment is effective, it is considered that neither CGT event E1 or CGT event E2 will happen as a result of the proposed amendments.

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