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Edited version of your written advice
Authorisation Number: 1013139997699
Date of advice: 16 December 2016
Ruling
Subject: Trust resettlement
Question
Will the proposed amendments to the Trust Deed give rise to a termination of the Trust?
Answer
No
Question
Will the proposed amendments to the Trust Deed give rise to a capital gain triggering the operation of CGT event E1 under section 104-55 of the Income Tax Assessment Act 1997 or CGT event E2 in section 104-60 of the Income Tax Assessment Act 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.
Clause X of the Trust Deed provides:
At any time prior to the Vesting Date the Trustee may by deed vary any of the trusts powers discretions or duties set out in this Deed in any manner whatsoever including but without in any way limiting the generality of this power enlarging any category of Eligible Beneficiaries and adding a further class of Eligible Beneficiaries.
The Trustee proposes to execute a Draft Deed of Variation which purports to enlarge the number of potential beneficiaries.
The Draft Deed of Variation will be executed in the 201X-1X financial year.
Relevant legislative provisions
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.
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, the proposed amendments 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 Income Tax Assessment Act 1997.