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Ruling
Subject: CGT event E1 - Creation of a trust
Questions:
1. 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.
2. If the proposed amendments did give rise to CGT event E1, how could the amendments be effected without doing so?
Answer:
Not applicable.
3. If the proposed amendments did give rise to CGT event E1, what would be the estimated CGT liability?
Answer:
Not applicable.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
The Trust was created by deed more than five years ago.
The Trust is characterised as a hybrid trust and its assets include an investment property acquired soon after settlement.
The trustee is considering amending the trust deed to make it a fixed trust for the purposes of the Land Tax Management Act 1956 (NSW). The amendments will make the beneficiaries of the trust presently entitled to the distributions of capital and income of the trust as required by the legislation.
The Trust deed allows the Trustee to revoke, add to or vary all or any of the provisions in the deed with the consent of the principle.
The necessary consent has been obtained.
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On 20 April 2012, the ATO publication, Creation of a new trust - Statement of principles August 2001, was withdrawn following the decision in Federal Commissioner of Taxation v Clark and Anor (Clark) [2011] FCAFC 5 (Clark's case).
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.
CGT event E1 is triggered when a trust resettlement occurs, that is, when one trust estate has ended and another has replaced it.
Tax Determination TD 2012/D4 sets out the Commissioner's view in respect to trust resettlements and whether or not a resettlement has occurred.
TD 2012/D4 asserts that a valid amendment to a trust will not result in the termination of a trust as long as:
· the amendment is made pursuant to an existing power;
· the amendment does not cause the trust to terminate for trust law purposes; and
· the effect of the amendment does not lead to a particular asset being subject to a separate charter of rights and obligations such as to give rise to the conclusion that that asset has been settled on terms of a different trust.
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.