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Edited version of your written advice
Authorisation Number: 1013066362682
Date of advice: 5 August 2016
Ruling
Subject: CGT event E1 and E2 - changes to the terms of a trust
Question 1
Will CGT event E1 or CGT event E2 in sections 104-55 and 104-60 of the Income Tax Assessment Act 1997 happen as a result of the Proposed Changes?
Answer
No.
This ruling applies for the following period:
1 July 2016 to 30 June 2017.
The scheme commenced on:
1 July 2016
Relevant facts and circumstances
1. The trustee of the XYZ Trust proposes to make changes to its deed (the Proposed Changes).
2. The Proposed Changes will be made pursuant to the power of amendment provided within the XYZ Trust deed.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-55
Income Tax Assessment Act 1997 section 104-60
Reasons for decision
The Proposed Changes will be made pursuant to the power of amendment provided within the XYZ Trust deed.
Taxation Determination TD 2012/21 contains the Commissioner's view on whether CGT event E1 or E2 happens if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document.
Such a change will not result in CGT event E1 or E2 happening unless:
• the change causes the existing trust to terminate and a new trust to arise for trust law purposes, or
• the change results in an asset being settled on the terms of a different trust.
Will the Proposed Changes cause the XYZ Trust to terminate for trust law purposes?
Pursuant to paragraph 1 of TD 2012/21, neither CGT event E1 nor CGT event E2 happens if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document unless the change causes the existing trust to terminate and a new trust to arise for trust law purposes.
As explained by paragraph 21 of TD 2012/21, the approach adopted by the Full Federal Court in Federal Commissioner of Taxation v. Commercial Nominees of Australia Ltd [1999] FCA 1455; 99 ATC 5115; (1999) 43 ATR 42, as made clear by Edmonds and Gordon JJ in their joint reasons for judgment in Commissioner of Taxation v. David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550:
…is authority for the proposition that assuming there is some continuity of property and membership of the trust, an amendment to the trust that is made in proper exercise of a power of amendment contained under the deed will not have the result of terminating the trust, irrespective of the extent of the amendments so made so long as the amendments are properly supported by the power.
The Commissioner is satisfied that the Proposed Changes will not cause the XYZ Trust to terminate for trust law purposes.
Will the Proposed Changes result in an asset of the XYZ Trust being settled on the terms of a different trust?
Pursuant to paragraph 1 of TD 2012/21, neither CGT event E1 nor CGT event E2 happens if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document unless the effect of the change 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 the terms of a different trust.
The Commissioner is satisfied that the Proposed Changes do not result in an asset of the XYZ Trust being subject to a separate charter of rights and obligations such as to give rise to the conclusion that an asset of the XYZ Trust has been settled on the terms of a different trust.
Conclusion
Accordingly, CGT event E1 or E2 in sections 104-55 and 104-60 of the Income Tax Assessment Act 1997 will not happen as a result of the Proposed Changes because:
• the Proposed Changes will not cause the XYZ Trust to terminate for trust law purposes, and
• the Proposed Changes will not result in an asset of the XYZ Trust being settled on the terms of a different trust.