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Edited version of your written advice
Authorisation Number: 1013073673158
Date of advice: 19 August 2016
Ruling
Subject: Whether a CGT event will occur as a result of the proposed amendment
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 period
Year ending 30 June 2017
The scheme commenced on
1 July 2016
Relevant facts and circumstances
A Deed of Settlement (trust deed) made between the settlor and the trustee was settled for the benefit of a single beneficiary.
A clause of the trust deed states the trustee shall have the power from time to time and at any time to vary the trust and provisions hereof as it shall in its absolute and unfettered discretion deem appropriate to give full and complete effect to the trust hereinbefore declared.
The trustee intends to amend the trust deed to allow part of the capital and/or income of a trust to go towards the purchase of an asset for the benefit of the beneficiary.
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 to beneficiaries 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 allows for the Trustee to amend the deed and in this case it is accepted that neither of the two exclusions mentioned above will apply as a result of the proposed amendment. Consequently, neither CGT event E1 nor CGT event E2 arises in relation to the change proposed. It is also considered no other CGT event will occur as a result of the proposed amendment.