Edited version of private ruling

Authorisation Number: 1011794341259

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Ruling

Subject: Change in Trustee of Superannuation Fund

Question 1

Will the proposed amendments to the trust deed cause a resettlement of the trust, giving rise to a Capital Gains Tax (CGT) event EI under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) for the trust?

Answer

No.

The proposed change in trustee will not cause the creation of a new trust, giving rise to a CGT event E1 under Section 104-55 of the Income Tax Assessment Act 1997

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The Trust was established by Deed of Settlement.

Subsequently, a Trust deed was signed by the trustee's on the establishment of a Superannuation Fund.

Later a Deed of Variation was signed by the trustee's to allow for two or more natural persons as trustees or corporate trustees.

There has since been a change in the Trustees.

A company will be nominated as the new trustee for the Superfund.

The trustees are seeking clarification that their deed of variation and recent changes of circumstances do not result in resettlement of the trust.

The deeds contain the relevant facts of the arrangement.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1997) Section 104-55.

Reasons for decision

A capital gain or loss is made only if a CGT event happens. 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 one trust comes to an end to be replaced by another trust.

In order to be able to answer questions such as the one posed by the trustee in this case, the Australian Taxation Office (ATO) has developed, Creation of a new trust Statement of Principles (the statement) in order to deal with the issue raised by the applicant. The statement, released on 9 June 1999 and updated on 29 August 2001, outlines when the Commissioner will treat changes as giving rise to a new trust estate.

The statement makes it clear that it is a change in the essential nature and character of the original trust relationship which creates a new trust. The statement considers a number of changes that would raise the question of whether a new trust has been created.

Changes potentially leading to a new trust can arise by several means, including variations under a power in the deed and a variation by agreement among the beneficiaries. Listed below are some of the changes which raise the question of whether a new trust has been created:

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

The statement goes on to highlight that creating a new trust will depend on the terms of the original trust, and on the powers of the trustee. In addition to this the original intentions of the settlor must be considered in determining whether a new trust has been created.

With these principles in mind, the following consideration is given to the rulees circumstances.

The capital beneficiaries of the trust are the trustee's and their dependants. It is considered the original intention of the settlor was to establish the trust for the benefit of the trustee's and their dependants.

The proposed change is to change the trustees to a corporate trustee one trustee is the sole director and shareholder.

 The Statement does consider the change in a trustee at the relevant paragraph:

A change of trustee does not in 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.

Under clauses of the amended Trust Deed, the trustee's of the fund maybe natural persons or constitutional corporations. Also, in the case of the natural person who is a trustee, the date on which the appointment to the office of Trustee ceases for any reason not otherwise herein provided: such as, divorce. The main change to the amended Deed is the replacement of the individual trustee by a corporate trustee.

It is considered the proposed change of trustee doesn't alter the original intentions of the settlor. The trust is still for the benefit of the trustee and their dependants or to the legal personal representatives. 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. Accordingly, the proposed change of trustee to a company, of which the trustee is the sole director and shareholder, will not change the beneficiaries, the obligations of the trustee, the terms or nature of the trust.

Conclusion

It is considered the proposed change is merely a change of the Trustee in a continuing trust and would not give rise to a CGT event E1 on property acquired by the trust.