Edited version of your private ruling

Authorisation Number: 1012427108994

Ruling

Subject: Capital Gains Tax - changes to deed of trust.

Question 1

Will the implementation of the proposed scheme to be ruled upon give rise to a resettlement of the Family Trust (i.e. a termination of the existing trust or the creating of a new trust) whereby or as a consequence of which, CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1, K3, K6 or any other CGT event in the Income Tax Assessment Act 1997 (ITAA 1997) happens?

Answer

No CGT event will happen upon implementation of the proposed arrangement.

Question 2

Will Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the proposed scheme to be ruled upon?

Answer

No. Part IVA of the ITAA 1936 will not apply to the proposed scheme to amend the Trust Deed. This ruling does not deal with any application of Part IVA of the ITAA 1936 to an exercise by the Trustee of any action in respect of the clauses once inserted into the Deed.

This ruling applies for the following periods:

The scheme commences on:

The scheme will commence on the earlier of the resignation of the current corporate trustee of the trust or the making of the Court orders sought.

Relevant facts and circumstances

The facts are as set out in the application and attachments thereto including the trust deed and the additional information provided including the Draft Court Application and the draft Deed of Variation for the Trust.

The scheme includes the following steps.

The trustee exercising its power under a clause of the Deed by

A.

(a) resigning as trustee of the Trust

(b) appointing a successor trustee in a certain state which will be a corporation incorporated in and having its registered office in a certain state and whose constitution provides for a majority of face to face meetings of directors to be held in a certain state, unless the directors otherwise resolve by special majority; and

(c) transferring the trust fund to the newly appointed successor trustee.

B.

Alternatively to (A) the current Trustee remaining as trustee of the Trust and amending its constitution to provide for a majority of face to face meetings of directors to be held in a certain state, unless the directors otherwise resolve by special majority.

C.

The trustee, whether it changes or remains the same, with the consent of all beneficiaries making an application to the state Court as per the draft application to vary the trust deed as set out in the draft Deed of Variation of the Trust.

The draft Deed of Variation includes the insertion of the following,

(1) the insertion of a clause conferring power on the trustee to amend the deed as the trustee sees fit in its absolute discretion

(2) The insertion of the following in relation to the income of the Trust,

(a) a definition of income of the trust fund

(b) a clause to allow the Trustee to separately record different categories on income, for example, franked and unfranked dividends and capital gains that have an Australian or overseas source.

(c) a clause conferring on the Trustee the ability to create sub-funds and

(d) a clause giving the trustee the ability to stream different categories of income

(3) Change the proper law of the Deed from one State jurisdiction to another and make any necessary consequential changes including the definition of 'Perpetuity date' to reflect the laws of the new jurisdiction.

Relevant legislative provisions

Division 104 of the ITAA 1997

Subsection 104-10(1) of the ITAA 1997

Subsection 104-10(2) of the ITAA 1997

Part IVA of the ITAA 1936

Section 177D of the ITAA 1936

Reasons for decision

Question 1

Summary

No CGT event will happen upon implementation of the proposed arrangement.

Detailed reasoning

Change in trustee

CGT event A1 happens if there is a change of ownership of a CGT asset from you to another entity, subsection 104-10(1) and subsection 104-10(2) of the ITAA 1997. However the note to subsection 104-10(2) of the ITAA 1997 makes it clear that CGT event A1 will not happen merely because of a change in the trustee of a trust.

Thus CGT event A1 will not happen upon a change in trustee from the current corporate trustee to a corporation incorporated in and having its registered office in another State.

Resettlement

Taxation Determination TD 2012/21 states that neither CGT event E1 or E2 happens if the terms of a trust are varied with the approval of a relevant court unless:

· The change causes the existing trust to terminate and a new trust to arise for trust law purposes, or

· The effect of the court approved variation is such as 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.

None of the proposed changes to the Deed causes the existing trust to terminate and a new trust to arise for trust law purposes. Also their inclusion in the trust deed does not of itself cause a particular CGT asset to be subject to a separate charter of rights and obligations such as to give rise to the conclusion that an asset has been settled on terms of a different trust. As such neither CGT event E1 or E2 will happen upon court approval of the Deed of Variation.

No other CGT event in Division 104 of the ITAA 1997 will happen upon court approval of the Deed of Variation of the trust deed.

Question 2

Summary

Part IVA of the ITAA 1936 does not apply to the arrangement.

Detailed reasoning

Section 177D of the ITAA 1936 provides that Part IVA applies to schemes where a taxpayer has obtained a tax benefit in connection with the scheme.

As there are not tax consequences from the implementation of the scheme there is no tax benefit obtained by any taxpayer. Thus the arrangement is not a scheme to which Part IVA of the ITAA 1936 applies.