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Edited version of private advice
Authorisation Number: 1012653418856
Ruling
Subject: Trust resettlement
Question
Will the proposed Deed of Variation give rise to capital gains tax (CGT) events E1 or E2 under sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer:
No
This ruling applies for the following period(s)
Year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
The trust was established before 20 September 1985.
The trust deed does not currently contain a definition of 'net income' or the power to allow the trustee to distribute trust property (other than income) prior to the vesting date.
The trust deed allows provisions of the trust deed to be revoked, added to or varied by the trustee by a supplemental deed with the special consent of the unit holders provided that any revocation, addition or variation meets certain requirements.
A draft proposed Deed of Variation has been prepared (but not yet effected) which seeks to:
• insert the power of the trustee to define net income, and
• insert the power of the trustee to set aside or distribute trust property (capital) prior to vesting day.
The trust holds pre-CGT assets.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 104-55
Income Tax Assessment Act 1997 - Section 104-60
Reasons for decision
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 or E2.
There are no other CGT consequences relating to the variation of the trust deed, however, we have not considered any CGT consequences that may arise from the disposal of any CGT asset of the trust as a result of these changes.