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Edited version of your written advice
Authorisation Number: 1012784459005
Ruling
Subject: Income tax - Capital gains tax - CGT events - CGT event A1 - disposal of a CGT asset
Income tax ~~ Capital gains tax ~~ CGT events ~~ CGT events E1 to E9 - trusts
Question 1
Will the variations proposed to the Trust trigger a trust resettlement and subsequently CGT event A1, E1 or E2?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2015.
The scheme commences on:
1 July 2014.
Relevant facts and circumstances
The Trustee is proposing to exercise a clause of the Trust Deed where the Trustee has the right to revoke, add to or vary the Trust Deed, subject to providing the Guardian of the Trust prior written notice of its intention to exercise this power pursuant to Trust Deed. The Guardian has waived the requirement for prior written notice pursuant to the Trust Deed.
The Trustee is proposing to vary the Trust Deed to have the effect of expressly naming the Specified Beneficiaries.
The Trustee also proposes to limit the General Beneficiaries to biological lineal descendants of the Specified Beneficiaries, charities and other eligible trusts and eligible corporations approved by the Trustee.
In addition, the variations will require any shares in the new corporate Trustee to be held and controlled by the same members as the current corporate Trustee and to have the same constitution.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 104-55
Income Tax Assessment Act 1997 Section 104-60
Reasons for decision
As per the Commissioner of Taxation v Clark [2011] FCAFC 5 (Clark's case), a trust will not be terminated provided that there is some degree of continuity established of the trust and any amendment to the trust is made in accordance with a power of amendment afforded to the Trustee.
Following Clark's case, the Commissioner issued TD 2012/21, which provides that a valid amendment to a trust pursuant to an existing power will not result in termination of the trust and therefore will not result in CGT events A1, E1 or E2 happening.
The proposed variations are a valid exercise of an amendment power contained in the Trust Deed and do not terminate or discontinue the Trust.
Therefore, a trust resettlement has not occurred and CGT events A1, E1 or E2 have not been triggered.