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Edited version of your written advice
Authorisation Number: 1051182693059
Date of advice: 24 January 2017
Ruling
Subject: Whether CGT event E1 will occur as a result of amendments to the trust deed
Question
Will the proposed amendments to the Trust Deed cause a resettlement of the trust so that CGT event E1 will happen?
Answer
No.
This ruling applies for the following period
Year ending 30 June 201Y
The scheme commenced on
1 July 201X
Relevant facts and circumstances
The trust was established by a deed.
The trustee has the power to amend the trust deed.
The trustee wishes to make amendments to the trust deed. The proposed amendments are within the powers of the trustee.
Relevant legislative provisions
Section 104-55 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 amendments. Consequently, neither CGT event E1 nor CGT event E2 will arise in relation to the change proposed. It is also considered no other CGT event will occur as a result of the proposed amendments.