Edited version of private advice

Authorisation Number: 1052391369912

Date of advice: 27 May 2025

Ruling

Subject:Trust deed amendments - 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 the proposed amendments to the Trust Deed of the G Trust?

Answer

No

This ruling applies for the following periods:

•         Income tax year ending 30 June 20YY

•         Income tax year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

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

2.      The Trustee for the Trust is Z.

3.      The Trust is a unit trust.

4.      The current Unit Holders are O and P.

5.      Clause 4.3 of the Trust Deed defines "Special Resolution.

6.      Clause 4.5 of the Trust Deed defines "Income".

7.      Clause 5 of the Trust Deed provides terms of the Trust in relation to allotment of units in the Trust.

8.      Clause 10 of the Trust Deed provides terms of the Trust in relation to termination of the Trust.

9.      The terms of the Trust set out in the Trust Deed do not provide which State laws govern the Trust.

10.    The Trustee and the Unit Holders are all residents of L State.

11.    L State stamp duty was paid on establishment of the Trust.

12.    The principal assets of the Trust are properties in L State.

13.    Clause 11 of the Trust Deed provides the Trustee the power to amend the deed.

14.    The Trustee, with the consent of the Unit Holders, 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 2012/21:

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 cases 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.

9.    In the present case, the Trust Deed gives the Trustee the power to amend the Trust Deed, in any way, with the approval of a Special Resolution of the Unit Holders.

10.  It is considered that the proposed amendments to the Trust Deed are being made under a valid power of amendment under the Trust Deed, there is continuity of property and membership of the Trust, and that the effect of the changes will not lead to any asset being subject to a separate charter of rights and obligations under a different trust.

11.  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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