Edited version of private ruling

Authorisation Number: 1011616699832

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Ruling

Subject: Trust Variation

Question 1

Does a change to the appointer and guardian of a trust trigger CGT event E1?

Answer

No

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The trust is a discretionary trust.

A deed of variation was executed.

The trust deed allows for changes to be made to the appointor and guardian of the trust.

Reasons for Decision

Changes to the terms or objects of a trust may result in that trust ceasing and a new trust arising. A consequence of this happening is that the assets of the old trust are settled in the new trust. CGT event E1, as specified in section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997), occurs because a trust (the new trust) is being created over a CGT asset (of the old trust). 

The Creation of a new trust Statement of Principles August 2001 (Statement of Principles) outlines when the Commissioner will treat changes as giving rise to a new trust estate. Changes that may result in the creation of a new trust, which include;

· any change in beneficial interests in trust property

· a new class of beneficial interest (whether introduced or altered)

· a possible redefinition of the beneficiary class

· changes in the terms of the trust or the rights or obligations of the trustee

· changes in the nature or features of trust property

· additions of property which could amount to a new and separate settlement

· depletion of the trust property

· a change in the termination date of the trust

· a change to the trust that is not contemplated by the terms of the original trust

· a change in the essential nature and purpose of the trust, and/or

· a merger of two or more trusts or a splitting of a trust into two or more trusts.

Depending on their nature and extent, and their combination with other indicia, these changes may amount to a mere variation of a continuing trust, or, where a fundamental change in the essential nature and character of the trust relationship is evident, will amount to the original trust ending and/or a new trust created.

In this case, the trust deed allows for the appointor and guardian to be changed. Thus it is considered that there is no change to the control of the trustee, and therefore control of the trust, beyond that envisioned by the settlor in establishing the trust.

The resignation of the original appointor and guardian is considered to be procedural in nature, and implemented on its own does not result in a resettlement of the trust. The changes amount to a variation of a continuing trust with the original trust maintaining the same trust purpose or theme. The proposed change would not give rise to a CGT event and a capital gain in relation to the trust property.