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Edited version of your written advice
Authorisation Number: 1012837453006
Date of advice: 9 July 2015
Ruling
Subject: Trust Resettlement
Question 1
Do the proposed amendments to the Trust Deed as set out in the Variation Deed give rise to a liability to pay a tax and/ or result in the happening of a Capital Gains Tax (CGT) event?
Answer
No.
Question 2
Do the proposed amendments of the Trust Deed cause either CGT event E1 or CGT event E2 to happen?
Answer
No.
This ruling applies for the following period(s)
Year ended 30 June 2016
The scheme commences on
1 July 2015
Relevant facts and circumstances
The Trust was created by the trust deed dated XXXX.
The trust has an interest in/owns real property.
The trust deed gives the trustee the power to vary the trust deed, an absolute discretion as to the appointment of distributable income of the trust to Income Beneficiaries and an absolute discretion as to the appointment of capital to the Capital Beneficiaries.
The trustee wants to amend the trust deed to change the definition of income beneficiary, add a beneficiary and add a clause.
Relevant legislative provisions
Section 104-55 of the Income Tax Assessment Act 1997
Reasons for decision
A trust resettlement will occur for income tax purposes where one trust estate has ended and another has replaced it. The effect of such a resettlement is that a disposal of the trust assets is deemed to occur. In consequence, capital gains could accrue to beneficiaries as a result of various CGT events.
Commissioner has recently released Taxation Determination TD 2012/D4 which was published as a result of a recent court case CoT v Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark's case). Whilst the case of Clark's case dealt with whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, TD 2012/D4 accepts that the principles set out in Clark's case have broader application.
TD 2012/D4 asserts 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 event E1 happening.
Following the direction set out in TD 2012/21, as the Trust Deed allows for the Trustee to amend the deed, CGT event E1 or E2 does not arise in relation to the changes proposed. Accordingly, there is no tax liable as a result of the change to the trust deed.