Edited version of private ruling

Authorisation Number: 1011753868500

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Ruling

Subject: Trust Resettlement

Question

Will the proposed Deed of Clarification and Variation constitute a resettlement or the creation of a new trust under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

During19XX, the trust was established by a deed of settlement.

During 19XX, a deed of variation appointed an additional trustee.

During 20XX, a deed of variation referred to State government provisions.

During 20XX, a deed of variation appointed two additional trustees.

A draft deed of variation (hereafter "Deed") has been submitted to amend definitions of the deed of settlement dated in 19XX.

The trustees are seeking confirmation that the various deeds of variation do not result in a resettlement of the trust.

The deeds contain the relevant facts of the arrangement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-55.

Reasons for decision

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.

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 lists a number of changes that may result in the creation of a new trust. They 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 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 this later case, the original trust is brought to an end and/or a new trust created.

The other indicia mentioned above include the original intentions of the settlor and the original terms of the trust. The powers of the trustee can also be a consideration.

There are two significant changes proposed by the Deed. They are the removal of clauses from the deed of settlement and the replacement of the individual trustees by a corporate trustee.

The trustees, under clauses of the deed of settlement, have the discretion to nominate as a beneficiary, an entity that is a charity or an entity in which an eligible beneficiary has (broadly speaking) an interest. In either case, once an entity is nominated that entity becomes an eligible beneficiary.

Example 5.1.3 in the Statement of Principles, describes the situation where, under the exercise of a power similar to that in the clauses of the deed of settlement, the addition of a new beneficiary will redefine the group of beneficiaries and therefore lead to a resettlement.

In the present case, the group of beneficiaries is defined in the deed of settlement by their relationship to a specified beneficiary. Under the Deed this relationship will remain unchanged. That is, the trustees in removing the clauses will not cause the group of beneficiaries to be redefined. The removal of the clauses will not lead to a resettlement.

Paragraph 5.4 of the Statement of Principles, outlines how a change of trustee does not in itself result in the termination of a trust. In the present case, the change of trustee is seen as merely procedural and even combined with the other change above does not lead to a resettlement.

It is concluded that the proposed changes amount to a mere variation of a continuing trust and do not result in a resettlement of the trust. Section 104-55 of the ITAA 1997 does not apply.