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Ruling
Subject: CGT event E1 - Creation of a trust
Question:
Will the proposed amendments to the Trust deed cause a resettlement of the Trust and give rise to CGT event E1 under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the Trust's CGT assets?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
The Trust is a resident discretionary trust and was established as an investment entity to provide assets for the long term benefit of family members (the beneficiaries).
The Trust fund includes CGT assets, namely real property.
Under the Trust deed, the trustee has absolute discretion to distribute the net income of the Trust prior to vesting to beneficiaries pursuant to the Trust deed. Alternatively, the trustee may accumulate all or any part of the income from the Trust fund.
There is no provision in default of the exercise of the power to accumulate the income or exercise its discretion to distribute income.
Pursuant to the Trust deed, the trustee has absolute discretion to raise sums from the capital of the Trust fund and distribute to any of the beneficiaries prior to vesting as the trustee thinks fit.
Under the Trust deed, the expression 'as the trustee thinks fit' is interpreted as giving the trustee the widest and most absolute and un-examinable discretion including, where applicable, the power to prefer one or other beneficiary to the total exclusion of any other or others of them.
Under the Trust deed, the trustee has the power to amend the Trust deed.
The trustee is now contemplating amending the Trust deed to:
· Provide the trustee with the absolute discretion to determine which receipts are included in the income of the Trust; and
· Allow the trustee to stream certain types of income and capital to particular beneficiaries.
Relevant legislative provisions
Income Tax Assessment Act 1997 - section 104-55
Reasons for decision
On 20 April 2012, the ATO publication, Creation of a new trust - Statement of principles August 2001, was withdrawn following the recent decision in Federal Commissioner of Taxation v Clark and Anor (Clark) [2011] FCAFC 5 (Clark's case) and the High Court's refusal to grant the Commissioner special leave to appeal that decision.
The decision in Clark' case is relevant to the question of the circumstances in which, as a result of changes being made to an existing trust, a new trust comes into existence, triggering CGT event E1. In that context, the ATO accepts that the reasoning of the court has the effect that a valid amendment to a trust, not resulting in a termination of the trust will not itself result in the happening of CGT event E1.
In your case, the proposed variations to the existing Trust deed would be a valid amendment to the trust, not resulting in a termination of the trust, and will not result in the happening of CGT event E1.