Edited version of your written advice

Authorisation Number: 5010050570462

Date of advice: 18 May 2018

Ruling

Subject: Does the proposed amendment to the deed result in the creation of a new trust?

Question

Is the proposed amendment to the Trust Deed (Deed), to vary the definition of the vesting date of the Trust, a valid exercise of power contained within the trust deed?

Answer

Yes

Question

Does the proposed amendment of the Deed give rise to CGT Event E1 under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) or CGT event E2 under section 104-60 or CGT Event A1 under section 104-10 of the ITAA 1997?

Answer

No

This ruling applies for the following period:

Year ending 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

1) The Trust is a discretionary trust established as a property and investment vehicle by Mr D for the benefit of his relative P and her daughters - S, N and their descendants.

2) The Trust was established by deed (the Deed) dated xx/xx/19xx.

3) The corporate trustee of the Trust is M Pty Ltd.

4) Clause 1 of the Deed sets out “Perpetuity Date” as the first to occur of the following dates:

(a) The date being forty(40) years from the date of the execution of this Deed;

(b) The date twenty(20( years after the death of the last survivor of the descendants now living of his majesty King George Sixth; or

(c) Such earlier date if any as the Trustee shall determine with the written consent of the Appointer to be the Perpetuity Date for the purposes of this Deed.

5) Clause 14 of the Deed sets out the powers of the Trustee

At any time and from time to time prior to the Perpetuity Date the Trustee with the written consent of the Appointor (if any) may by Deed alter vary or revoke any trust or provision hereunder other than this clause and clause 10 and in lieu thereof or in addition to the Trusts and provisions hereunder to appoint and resettle the Trust Fund or any part thereof and the income to arise therefrom in such manner and upon such trusts and subject to such conditions and in such proportions and with such powers and to such ends intents and purposes to or among such one or more of the beneficiaries as the Trustee may from time to time think fit, provided that:

(i) the trusts and powers contained in any such settlement shall not infringe the rule against perpetuities or otherwise extend the Perpetuity Date insofar as the same applies to the trusts hereof or the trusts of such settlement and shall not be contrary to the provisions of clause 11; and

(ii) subject to the provisions of clause 18 no alteration variation or revocation shall have the effect or diverting or modifying the interest of any beneficiary in the income of the Trust Fund or the investments representing the same or income derived from any such investment to which such beneficiary has become absolutely entitled pursuant to this Deed.

6) The Trustee wishes to amend clause 1, the vesting date. The proposed amendment is deletion of clause 1 and replacing it as follows:

“The Perpetuity Date” means the first to occur of the following dates:

a) the day before the eightieth (80^th) anniversary of the date of this deed;

b) such earlier date if any as the Trustee shall determine with the written consent of the Appointer to be the Perpetuity Date for the purposes of this Deed.

7) The Trust is governed by New South Welsh law.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-55

Income Tax Assessment Act 1997 Section 104-60

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

Summary

The Commissioner accepts that the extension of the vesting date of the Trust as contemplated by the proposed amendment deed will not cause CGT events E1, E2 or A1 under sections 104-55, 104-60 or 104-10 of the Income Tax Assessment Act 1997 to happen.

Detailed reasoning

Will the proposed amendment to the vesting date result in the creation of a new trust?

CGT Event E1 and E2

CGT event E1 under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) happens if you create a trust over a CGT asset by declaration or settlement. This event will also happen if changes made to a trust alter the nature and character of the trust relationship such that the original trust ceases to exist and a new trust is created.

CGT event E2 happens if you transfer a CGT asset to an existing trust (subsection 104-60(1) of the ITAA 1997).

The Commissioner, as per 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? is of the view that CGT events E1 and E2 will not happen if the terms of a trust are changed pursuant to a valid exercise of power contained within the trust deed, unless:

● the amendment causes the trust to terminate for trust law purposes, or

● the effect of the amendment is 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.

Draft ruling TR 2017/D10 states that prior to a trust's vesting, it may be possible for the trustee or a Court to postpone the vesting of the trust by nominating a later date as the new vesting date. Determining whether the trustee has the power to amend the deed to change the vesting date requires a careful consideration of the terms of the trust deed.

The initial question is whether the proposed amendments can be validly effected by the trustee exercising a power under the trust deed.

The comments of the Full Federal Court in Federal Commissioner of Taxation v. Commercial Nominees Australia Ltd (1999) 167 ALR 147; at paragraph 56 are relevant:

So long as any amendment of the trust obligations relating to such trust property is made in accordance with any power conferred by the instrument creating the obligations, and the continuity of property that is subject of trust obligations is established, there will be identity of the 'taxpayer…..notwithstanding any amendment of the trust obligation and any change in the property itself (emphasis added).

Clause xx of the Deed gives the trustee the ability to revoke, alter or vary the majority of the provisions of the Deed with the consent of the Appointer. It confers fairly wide discretionary powers to add to or vary the provisions of the trust deed in relation to the management or control of the trust or the trustee’s powers or discretions, provided that such additions or variations do not benefit the Settlor or affect existing beneficiary entitlements.

There is a qualification that the variation power must be used in a manner that ‘shall not infringe the rule against perpetuities’. This suggests that the Settlor specifically contemplated that such an extension of the perpetuity date (the vesting date) could be effected by exercise of the power under clause xx - and the use of the amendment power to achieve that extension would be allowable, provided that it did not infringe the rule against perpetuities. Here the vesting date will be extended, but it will not breach the rule against perpetuities as it requires the trust to vest no later than 80 years from the date of the trust deed. We therefore consider that it is a proper use of the trustee’s amendment powers in clause 14 to extend the vesting date as such. The proposed amendments will not impact on the continuity of the trust and trust membership principles as set out in Commissioner of Taxation v. David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550.

Furthermore, the proposed amendments will have no impact on the beneficiaries’ interests or the trustee’s holding of trust assets, and will not 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.

For the reasons outlined above it is considered that the proposed amendments would not cause the cessation of one trust and the creation of a new trust. Accordingly, neither CGT event E1 nor CGT event E2 will happen.

CGT event A1

CGT event A1 happens if an entity disposes of a CGT asset (subsection 104-10(1) of the ITAA 1997). A disposal happens if a change of ownership occurs from the entity to another entity, whether because of some act or event or by operation of law (subsection 104-10(2)). However, there is no such change of ownership where there is no change in legal and beneficial ownership of the assets (see Taras Nominees Pty Ltd v. FCT 2015 ATC 20-483).

The proposed amendment will not result in a change of legal ownership over the assets of the trust as M Pty Ltd will be the owner of all trust assets before and after the amendment. Accordingly CGT event A1 will not happen on the making of the proposed amendment.

Conclusion

CGT events A1, E1 and E2 under sections 104-10, 104-55 and 104-60 will not happen as a result of the making of the proposed amendment to the Trust.

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