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Edited version of your private ruling
Authorisation Number: 1012439054867
Ruling
Subject: Whether there is a 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 arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
· your application for private ruling
· copy of Deed of Settlement
· copy of Deed of Amendment
· copy of a Deed of Appointment
· copies of Resolutions of the Trustee for a number of financial years.
The Trust is a discretionary trust.
The directors of the trustee company are Specified Beneficiaries under the trust deed.
There is only one named Specified Beneficiary of the Trust. However, the class of Specified Beneficiaries also includes his spouse and the children of the named Specified Beneficiary. The definition does not include step children.
There is one child of the named beneficiary and his spouse and two children of the spouse from former marriages.
Clause 1.23 of the Trust Deed includes several classes of persons who may be treated as General Beneficiaries, including the Specified Beneficiaries and "… the children and grandchildren of the Specified Beneficiary or … Specified Beneficiaries.
Accordingly, the children of the spouse are General Beneficiaries by being their children.
All family members have participated in the distribution of income from the Trust as beneficiaries of the Trust.
The parents wish to plan for the future conduct of the Trust in the event of either or both of their deaths. It is their intention that all children should continue to be entitled to distributions of income and capital of the Trusts after their deaths.
Pursuant to Clause 11 of the Trust Deed, the Trustee has the power to vary the terms of the Trust.
The Trustee proposes to vary the terms of the Trust.
First, the Schedule to the Trust Deed would be varied to include all family members as Specified Beneficiaries. This would remove the need for any family members to meet criteria for the class of General beneficiaries. The death of any family member would not have any effect on the ability of the surviving family members to remain as Specified Beneficiaries of the Trust. This is the Trustee's preferred outcome.
Alternatively, Clause 1.2 of the Trust Deed could be varied to include the following persons in the class of General beneficiaries:
(a) Stepchildren of a Specified Beneficiary: and
(b) Children of a former or deceased spouse of a Specified Beneficiary.
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 2012/21 sets out the Commissioner's view in respect to trust resettlements and whether or not a resettlement has occurred.
TD 2012/21 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.