Edited version of your written advice

Authorisation Number: 1013139645152

Date of advice: 15 December 2016

Ruling

Subject: Trust resettlement

Question

Will the execution of the amending deeds constitute a termination of the trust, creation of a new trust or a transfer of a CGT asset, pursuant to CGT event A1, E1 or E2 of the Income Tax Assessment Action 1997?

Answer

No

Question

Will the execution of the amending deeds constitute a termination of the trust, creation of a new trust or a transfer of a CGT asset, pursuant to CGT event A1, E1 or E2 of the Income Tax Assessment Action 1997?

Answer

No

This ruling applies for the following period(s)

Year ended 30 June 201X

The scheme commences on

1 July 201X

Relevant facts and circumstances

The trust is a discretionary trust (Trust). The Trust owns real property and other assets located in Australia.

The Trust Deed contains a general power to amend the Trust under clause X, which has not been amended by any subsequent deed (Amendment Power). The Amendment Power provides that the Trustee may by deed or orally (but subject to the rest of the clause) vary the deed at any time and in any way.

Clause Y of the Trust Deed contains a power for the Trustee, with the written consent of the Appointer, to exclude any beneficiary of the Trust (Exclusion Power).

The Trustee proposes to amend the Trust Deed in accordance with the Amendment Power, by execution of amending deeds that purport to appoint additional Appointers and remove certain beneficiaries. The Appointer will provide their consent.

The amending deeds will be executed in the 201X-1X financial year.

Relevant legislative provisions

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

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.

CGT event A1 happens if an entity disposes of a CGT asset (Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)).

CGT event E1 happens if trust is created over a CGT asset by declaration or settlement (Section 104-55 of the ITAA 1997).

CGT event E2 happens if a taxpayer transfers a CGT asset to an existing trust (Section 104-60 of the ITAA 1997).

The decision in Clark's case is relevant to the question of the circumstances in which, as a result of changes being made to an existing trust, a new trust comes into existence, triggering CGT event E1 or an asset is transferred into an existing trust triggering E2.

Taxation Determination TD 2012/21: Income tax: does CGT even 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 power contained within the trust's constituent document, or varied with the approval of a relevant court? sets out the Commissioner's view in respect to trust resettlements and whether or not a resettlement has occurred.

TD 2012/21 asserts that a valid amendment to a trust will not result in the termination of a trust as long as:

● the amendment is made pursuant to an existing power;

● the amendment does not cause the trust to terminate for trust law purposes; and

● the effect of the amendment does 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.

In your case, there has been no disposal of any trust asset, triggering the happening of CGT event A1 in section 104-10 of the ITAA 1997. The proposed variation to the existing Trust Deed would be a valid amendment to the Trust, not resulting in a termination of the Trust, and will not result in the happening of CGT event E1 in section 104-55 or CGT event E2 in section 104-60 of the ITAA 1997.