Edited version of private ruling

Authorisation Number: 1011623239706

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Ruling

Subject: Trust Resettlement

1. Will the proposed amendment to replace the trustees cause a resettlement of the trust, giving rise to a capital gains tax (CGT) event?

No.

2. Will the proposed amendments to replace the appointor cause a resettlement of the trust, giving rise to a CGT event?

No.

3. Will the proposed amendments to change the name of the trust cause a trust resettlement, giving rise to a CGT event?

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-55

Relevant facts and circumstances

The trust deed has been established for the benefit of a family.

In accordance with the trust deed, the trustee has the power to amend the trust deed. The trustee also has the power to appoint new trustees and resign. In accordance with the trust deed, the appointor may also resign and nominate new appointors.

The trust deed is to be amended to include new trustees and the original trustees intend to resign.

Under the amending deed, the current appointor also intends to resign and nominate a new appointor.

The trustee also intends to arrange a change to the name of the trust via the amending deed.

Reasons for decision

Generally, a capital gain or loss is made when a CGT event happens to a CGT asset acquired after 20 September 1985. Event E1, as provided in section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997), occurs where a trust is created over a CGT asset. This will be the case if the changes to the Trust Deed are such that a new trust is created over the trust property (the CGT assets).

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 estate.

It is noted that as the Statement of Principles is the Commissioner's view on the resettlement of trusts, the Commissioner must follow the guidelines outlined in the paper.

The Statement of Principles makes it clear that a change to the essential nature and character of the original trust relationship creates a new trust. The Statement of Principles considers a number of changes that may result in the creation of a new trust, which are listed below:

· 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 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 alternatively to a fundamental change in the essential nature and character of the trust relationship. In the second case, the original trust is brought to an end and/or a new trust created.

The Statement of Principles highlights that creating a new trust will depend on the terms of the original trust, and on the powers of the trustee. In addition, the original intentions of the settlor must be considered in determining whether a new trust has been created.

Change of trustee and change of name

Paragraph 5.4 of the Statement of Principles state that a change of trustee does not itself result in a termination of the trust. If there is merely a change of trustee, the trust property with the accompanying equitable duties are assumed by the new trustee and the trust estate continues unchanged. On the other hand, a change in the trustee or control of the trustee may be an element in arrangements which in their entirety amount to the creation of a new trust.

In the current case, the trust deed provides the trustee with the power to vary the trust deed and also allows for the appointment and removal of a trustee. In this case, the trustees are to resign and be replaced with two new trustees.

The original intention of the settlor was for the trust to benefit the specified beneficiaries and their family. The proposed change of trustee or change of name does not alter the original intentions of the settlor as the trust will still be for the benefit of the specified beneficiaries. The trust property with the accompanying equitable duties are assumed by the new trustee and the trust estate continues unchanged.

As the proposed amendments are procedural in nature, the amendments will not give rise to a CGT event and not cause a resettlement of the trust.

Change of Appointor

The trust deed provides the appointor with the power to nominate new appointors and also allows for the resignation of an appointor. In this case, the current appointor intends to resign and appoint another appointor under the amending deed.

It is considered that the proposed amendment to change the appointor is comparable to the changing of the trustee and is also procedural in nature. The original intention of the settlor has not changed as there will not be any change to the beneficiaries, the obligation to the trustee, the terms or nature of the trust.

The proposed change will not give rise to a CGT event and will not cause a resettlement of the trust.