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Ruling
Subject: Trust resettlement
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 ending 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
The trust is a discretionary trust.
The directors of the trustee company are named beneficiaries under the trust deed along with their oldest child.
The trustees now propose to include their younger child as a named beneficiary as well, through a deed of variation.
Under section 4(c) of the trust deed, the default beneficiaries are the children of the named beneficiaries.
Under section 14 of the trust deed, the trustee has the power to amend all provisions of the trust deed or any amending instrument providing:
· the rule against perpetuities is not infringed
· the variation is not in favour of the settlor, the settlor's estate or any entity in which the settlor or the settlor's estate has an interest; and
· the variation does not affect the beneficial entitlement of any beneficiary to any account to which the beneficiary become entitled under the deed prior to the date the variation is effected.
The proposed variation will not fall within the scope of any of the prohibitions in section 14 of the trust deed.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-55
Reasons for decision
The decision in Clark's 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.