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Edited version of your written advice
Authorisation Number: 1013029709154
Date of advice: 7 June 2016
Ruling
Subject: Whether a resettlement of the trust will occur as a result of a change to the deed
Question
Will the proposed amendment to the trust deed cause a resettlement of the trust so that CGT event E1, E2 or any other CGT event will happen?
Answer
No
This ruling applies for the following periods
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commenced on
1 July 2015
Relevant facts and circumstances
The trustee is proposing to make a change to the trust deed pursuant to the amendment power provided in the trust deed.
Relevant legislative provisions
Section 104-55 of the Income Tax Assessment Act 1997
Section 104-60 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 as a result of various CGT events.
The Commissioner has released Taxation Determination TD 2012/21 which was published as a result of the court case CoT v. Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark's case). Whilst 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 2012/21 accepts that the principles set out in Clark's case have broader application.
TD 2012/21 states that a valid amendment to a trust pursuant to an existing power will not result in CGT event E1 or CGT event E2 happening unless:
• the change causes the existing trust to terminate and a new trust to arise for trust law purposes, or
• the effect of the change or court approved variation is such as 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.
The trust deed in question allows for the trustee to amend the deed and in this case it is accepted that neither of the two exclusions mentioned above apply. Consequently, neither CGT event E1 nor CGT event E2 arises in relation to the change proposed. No other CGT events are considered to arise.