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Edited version of your written advice
Authorisation Number: 1012939841042
Date of advice: 21 January 2016
Ruling
Subject: Amendments to trust deed
Question 1
Will the extension of the vesting date of the Trust as contemplated by the Proposed Amendments to the trust deed give rise to capital gains tax (CGT) events E1, E2 or A1 under sections 104-55, 104-60 or 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2015
Year ending 30 June 2016
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
The Trust is a discretionary trust.
The trustee proposes to make three variations to the Deed (the Proposed Amendments):
1. extending the Vesting Day to the maximum period permitted at law which does not breach the rule against perpetuities (the Vesting Date Extension);
2. inserting administrative provisions to allow the classification and allocation of income to the beneficiaries for the purposes of Subdivisions 115-C and 207-B of the Income Tax Assessment Act 1997 (the Streaming Variation); and
3. expanding the class of beneficiaries (the Beneficiaries Variation).
The Proposed Amendments will be made with the knowledge and acquiescence of the Primary Beneficiaries.
The trust deed provides the Trustees with various powers to amend the deed.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 102-25(1)
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
CGT events E1 and E2
CGT event E1 happens if a new trust is created over the CGT assets of the Trust by declaration or settlement (subsection 104-55(1) of the ITAA 1997).
CGT event E2 happens if you transfer a CGT asset to an existing trust (subsection 104-60(1) of the ITAA 1997).
The Commissioner, as per Taxation Determination TD 2012/21 Income tax: does CGT event E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 happen if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court? is of the view that CGT events E1 and E2 will not happen if the terms of a trust are changed pursuant to a valid exercise of power contained within the trust deed, unless:
• the amendment causes the trust to terminate for trust law purposes, or
• the effect of the amendment is 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.
Are the Proposed Amendments a 'valid exercise of power contained within the trust deed'?
The initial question is whether the Proposed Amendments can be validly effected by the trustee exercising a power under the trust deed.
The comments of the Full Federal Court in Federal Commissioner of Taxation v. Commercial Nominees Australia Ltd (1999) 167 ALR 147; at 157-158 are relevant:
So long as any amendment of the trust obligations relating to such property is made in accordance with any power conferred by the instrument creating the obligations, and the continuity of property that is subject of trust obligations is established, there will be identity of the 'taxpayer…..notwithstanding any amendment of the trust obligation and any change in the property itself (emphasis added).
It is therefore concluded that the Proposed Amendments would be a valid exercise of a power contained with the Deed.
Will the Proposed Amendments result in the creation of a new trust?
The Proposed Amendments will not impact on the continuity of the trust and trust membership principles as set out in Commissioner of Taxation v. David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550.
Furthermore, as the Proposed Amendments will have no impact on the beneficiaries' interests or the trustee's holding of trust assets, the proposed amendment will 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.
For the reasons outlined above it is considered that the Proposed Amendments would not cause the cessation of one trust and the creation of a new trust. Accordingly, neither CGT event E1 nor CGT event E2 will happen.
CGT event A1
CGT event A1 happens if an entity disposes of a CGT asset (subsection 104-10(1) of the ITAA 1997). A disposal happens if a change of ownership occurs from the entity to another entity, whether because of some act or event or by operation of law (subsection 104-10(2)). However, there is no such change of ownership where there is no change in legal and beneficial ownership of the assets (see Taras Nominees Pty Ltd v. FCT 2015 ATC 20-483).
The Proposed Amendments will not result in a change of legal ownership over the assets of the trust. Accordingly CGT event A1 will not happen on the making of the Proposed Amendments.
Conclusion
CGT events A1, E1 and E2 under sections 104-10, 104-55 and 104-60 will not happen as a result of the making of the Proposed Amendments to the Trust.