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Ruling

Subject: Variation of trust deed

Question 1

Will the extension of the vesting date of the Discretionary Family Trust as contemplated by the Proposed Deed Amendment not give rise to CGT events E1, E2 or A1 under sections 104-55, 104-60 or 104-10 of the Income Tax Assessment Act 1997?

Answer

Yes. Please see our "Reasons for decision".

This ruling applies for the following periods:

1 July 2012 to 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The Discretionary Family Trust was established by a deed ("Trust Deed") between the Settlor and the Trustee.

Pursuant to the Trust Deed the Discretionary Family Trust is governed by the relevant State laws.

By later deeds the Trust Deed was amended to update its provisions for minor changes to the general law and taxation law.

The Trust Deed via the relevant clause currently defines the vesting day as follows:

"the vesting day" means the twenty first anniversary of the death of the last survivor of the lineal descendants of King George V living at the date thereof or sixty years from the date thereof (whichever is the earlier), or alternatively such earlier date as the Trustee may in the Trustee's absolute discretion appoint,

The Trust Deed allows the Trustee to revoke, add to or vary the terms of the Discretionary Family Trust. Specifically, the relevant clause provides:

· the Trustee may at any time and from time to time by Deeds revocable or irrevocable for the purposes of resettlement or variation of the trusts conditions powers or provisions as herein provided revoke add to or vary all or any of the trusts herein or any of the trusts constituted by any earlier resettlement or variation or may by the same or any other Deed or Deeds declare any new or other trusts powers concerning the Trust Fund or any part or parts thereof so that any law against perpetuities is not thereby infringed and so that such new or other trust powers discretions alterations or variations:

· shall not be in favour of or for the benefit or result in any benefit for any person for the time being, being a member of the excluded class or the Appointer or the Trustee;

· shall not affect the beneficial entitlement to any amount set aside for any beneficiary or otherwise affect any interest which is vested prior to the variation or any alteration or addition.

Under the relevant State laws the rule against perpetuities has been abolished, subject to the jurisdiction of the State Supreme Court to order a vesting of interests.

The Trustee proposes to amend the Trust Deed ('Proposed Deed Amendment') to extend the vesting date to ensure that the Discretionary Family Trust is not required to vest at a date earlier than that required by the relevant State laws.

Under the Proposed Deed Amendment, the Trust Deed will be further amended by:

Deleting the existing definition of the "vesting day" in the relevant clause of the Trust Deed and inserting the following new definition of the "vesting day" as follows:

the "vesting day" means:

· if any property of the Trust Fund is governed by laws outside of the State which impose a perpetuity period on trusts, then in respect of that property only, the date of expiry of that perpetuity period or such earlier date as the Trustee may in its absolute discretion appoint; and

· in any other case such date as the Trustee may in its absolute discretion appoint, subject to any contrary applicable law or Court order."

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 102-25(1)

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 104-55, and

Income Tax Assessment Act 1997 Section 104-60.

Reasons for decision

Summary

The Commissioner accepts that the extension of the vesting date of the Discretionary Family Trust as contemplated by the Proposed Deed Amendment will not cause CGT events E1, E2 or A1 under sections 104-55, 104-60 or 104-10 of the Income Tax Assessment Act 1997¹ to happen.

Detailed reasoning

If the Proposed Deed Amendment causes the resettlement of the Discretionary Family Trust, CGT event A1 under section 104-10 can happen as there would be a disposal of the Trust's assets, and CGT event E1 under section 104-55 can happen as a new trust would be created over the CGT assets of the Trust, however CGT event E2 under section 104-60 can not happen as there would be no transfer of a CGT asset to an existing trust.

When applying subsection 102-25(1) to CGT events A1 and E1, CGT event E1 would be the most specific event if a resettlement were to occur, as there would be a new trust created over the Trust's CGT assets.

The Commissioner, as per Draft Taxation Determination TD 2012/D4, is of the view that CGT event E1 will not happen if the terms of a trust are changed pursuant to a valid exercise of power contained with the trust deed, unless:

· the amendment causes the trust to terminate for trust law purposes, or

· the effect of the amendment is to 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.

The Proposed Deed Amendment by the Trustee will be a valid exercise of power contained with the Trust Deed, because it will comply with the relevant clause of the Trust Deed as follows:

There will be no infringement of any law against perpetuities, as:

· the relevant State laws have abolished rules against perpetuities in the State, and

· any Trust property that is governed by laws outside of the State which impose a vesting period on trusts, will be subject to the applicable vesting period.

The extension of the vesting date is only to extend the life of the Trust, meaning:

· it will not be in favour of or benefit any person being a member of an excluded class of beneficiaries, or the Appointer or the Trustee, and

· it will not affect any beneficial entitlement to an amount set aside for any beneficiary, or any interest which is vested prior the Proposed Deed Amendment.

The Proposed Deed Amendment will not cause the Discretionary Family Trust to terminate for trust law purposes, as the extension of the vesting date will not impact on the continuity of trust property and trust membership principles set out in Federal Commissioner of Taxation v. Commercial Nominees of Australia Ltd [1999] FCA 1455; 99 ATC 5115; (1999) 43 ATR 42 and Commissioner of Taxation v. David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550.

Furthermore, as the extension of the Discretionary Family Trust's vesting date will have no impact on the beneficiaries' interests, the Proposed Deed Amendment will 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.

Conclusion

In addition to CGT events A1 and E2 under sections 104-10 and 104-60 not happening as a result of the extension of the vesting date of the Discretionary Family Trust as contemplated by the Proposed Deed Amendment the Proposed Deed Amendment, the Commissioner accepts that CGT event E1 under section 104-55 will also not happen.