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Ruling
Subject: Trust Resettlement
Question
Will the changes to the Trust Deed proposed by the Deed of Variation result in the creation of a new trust and therefore trigger the happening of CGT event E1?
Answer:
No
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2002
Relevant facts and circumstances
Pursuant to a power contained in the Trust Deed for the Trust the Trustee wishes to vary provisions of the Trust Deed in the manner contained in the Deed of Variation.
Reasons for decision
A trust resettlement will occur for income tax purposes where one trust estate has ended and another has replaced it. The effect of such a resettlement is that a disposal of the trust assets is deemed to occur. In consequence, capital gains could accrue to beneficiaries as a result of various CGT events.
Commissioner has recently released Taxation Determination TD 2012/D4 which was published as a result of a recent court case Clark v Commissioner of Taxation [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark's case). Whilst the case of Clark's case dealt with whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, TD 2012/D4 accepts that the principles set out in Clark's case have broader application.
TD 2012/D4 asserts that a valid amendment to a trust pursuant to an existing power will not result in termination of the trust and therefore will not result in CGT event E1 happening.
The Trust Deed enables the Trust to be varied in the manner contained in the Deed of Variation. Following the direction set out in TD 2012/D4, as the amendment is within the distributor provisions set out in the Trust Deed, CGT event E1 does not arise in relation to the addition of the Deed of Variation.