Edited version of your written advice

Authorisation Number: 1051189979183

Date of advice: 14 February 2017

Ruling

Subject: Change of ownership and control of a company held by a trust

Question 1

Will the Proposed Transaction result in a group beginning to control a trust (the “Trust”) directly or indirectly for the purposes of section 267-45 of Schedule 2F to the Income Tax Assessment Act 1936 (Cth) (“ITAA 1936”)?

Answer

No.

Question 2

Will the Proposed Transaction result in a company (the “Company”) being unable to satisfy the “same owners” test under section 165-12 of the Income Tax Assessment Act 1997 (“ITAA 1997”)?

Answer

No. The Company is taken to have satisfied section 165-12 of the ITAA 1997 since the special provisions in section 165-215 of the ITAA 1997 have been met.

Question 3

Will the execution of Deeds by each of A and B give rise to CGT event E1 in section 104-55 of the ITAA 1997 in relation to the CGT assets of the Trust?

Answer

No.

This ruling applies for the following periods:

1 July 2016 to 30 June 2017,

1 July 2017 to 30 June 2018

1 July 2018 to 30 June 2019, and

1 July 2019 to 30 June 2020.

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The Company

The Company is the head company of a consolidated group for income tax purposes.

The Company holds shares (directly and indirectly) in various companies.

The Company has three directors.

The Company has substantial carried forward capital and revenue losses. The entirety of The Company's issued share capital is held, and has been held at all times from the commencement of the year of income in which the carried forward capital and revenue losses were incurred until the present time, by a trustee (the “Trustee”), in its capacity as trustee of the Trust.

The Trust

The Trust is a discretionary trust established by deed. A copy of the trust deed (the “Trust Deed”) has been provided for the purposes of this ruling.

The Trust is a non-fixed trust for the purposes of Schedule 2F to the ITAA 1936;

At all times since its establishment, the trustee of the Trust has been the Trustee.

Under the Trust Deed, there are four individuals who hold the position of both Appointor and Guardian of the Trust.

At all relevant times, none of the Appointors or Guardians of the Trust were associates of each other.

There are two Specified Beneficiaries of the Trust.

The General Beneficiaries of the Trust are outlined in the Trust Deed.

The Trustee

The Trustee is a corporate trustee of the Trust, with two shares on issue:

(a) One ordinary share (50% shareholding) held by Company B; and

(b) One ordinary share (50% shareholding) held by C.

At present, the Trustee has four directors.

The Trustee is governed by Memorandum of Articles.

The Trustee's activities are restricted to acting as the corporate trustee of the Trust. In particular, the Trustee is not a partner in any partnership and does not, in its own right, benefit under any trust.

Company B

50% of Company B is held by C and 50% by D.

C and D are both directors of Company B.

Proposed Transaction

The “Proposed Transaction” would involve:

(a) C selling their share in the Trustee to A; and

(b) Company B selling its share in the Trustee to B

If the Proposed Transaction were to proceed, the two shares in the Trustee will be held (one each) by A and B.

As it currently stands prior to the Proposed Transaction:

(a) A and B are not associates of each other;

(b) A is not an associate of any of the Appointors or Guardians of the Trust; and

(c) B is not an associate of any of the Appointors or Guardians of the Trust.

There are no circumstances of which the Trustee or any of its directors are aware under which A or B are beneficiaries of the Trust having regard to the Trust Deed.

There are no circumstances of which the Trustee or any of its directors are aware under which A or B are members or beneficial shareholders of any corporation that qualifies as a beneficiary of the Trust.

The Proposed Deeds

To avoid any doubt, it has been proposed that A and B will each execute a deed (the “Deed”) that unconditionally and irrevocably:

(a) Declares that they are not “General Beneficiaries” under the Trust Deed and have not received any distributions or benefits from the Trust in that capacity to date; and

(b) Renounces any interest that they currently or may have in the future as a “General Beneficiary” under the Trust Deed

It is proposed that the Deeds will operate on a prospective as well as a retrospective basis from the time at which the Trust was first settled.

The draft Deed has been provided to the Commissioner.

Assumptions

The following assumptions will apply for the purposes of this ruling:

(a) No other event has occurred that has caused the Company to fail the “same ownership” test in section 165-12 of the ITAA 1997; and

(b) The “pattern of distributions” test referred to in section 267-30 of Schedule 2F to the ITAA 1936 has been met.

Relevant legislative provisions

Income Tax Assessment Act 1936, Schedule 2F, section 267-20,

Income Tax Assessment Act 1936, Schedule 2F, section 267-40,

Income Tax Assessment Act 1936, Schedule 2F, section 267-45,

Income Tax Assessment Act 1936, Schedule 2F, section 269-50,

Income Tax Assessment Act 1936, Schedule 2F, section 269-95,

Income Tax Assessment Act 1936, Schedule 2F, section 272-10,

Income Tax Assessment Act 1936, paragraph 318(2)(d),

Income Tax Assessment Act 1936, subsection 318(3),

Income Tax Assessment Act 1997, section 165-10,

Income Tax Assessment Act 1997, section 165-12,

Income Tax Assessment Act 1997, section 165-13,

Income Tax Assessment Act 1997, section 165-150,

Income Tax Assessment Act 1997, section 165-155,

Income Tax Assessment Act 1997, section 165-160, and

Income Tax Assessment Act 1997, section 165-215.

Reasons for decision

Question 1

Summary

No. The Proposed Transaction will not result in a new “group” being formed between either A or B and any of the entities that potentially (directly or indirectly) control the Trust. Therefore, there is no new group that begins to control the Trust for the purposes of section 267-45 of Schedule 2F to the ITAA 1936.

Detailed reasoning

The control test

Under section 267-20 of Schedule 2F to the ITAA 1936, a non-fixed trust (that is not an excepted trust) may deduct a tax loss provided that the conditions listed in sub-section 267-20(2) are satisfied.

For present purposes, the relevant condition (otherwise known as the “control test”) is contained in section 267-45 of Schedule 2F to the ITAA 1936, which states:

A group must not, during the test period, begin to control the trust directly or indirectly.

The test period starts at the beginning of the year when the tax loss was incurred, and ends at the end of the income year where the tax loss is allowed as a deduction. Importantly, in order for this condition to be triggered, the following must be satisfied:

(a) There must be a “group” for the purposes of these provisions; and

(b) The relevant “group” must begin to control the trust.

Control of the Trust

Subsection 269-95(1) of Schedule 2F to the ITAA 1936 provides the basic meaning of the phrase 'control a non-fixed trust'. The subsection states that a group controls a non-fixed trust if:

(a) The group has the power, by means of the exercise of a power of appointment or revocation or otherwise, to obtain beneficial enjoyment (directly or indirectly) of the capital or income of the trust; or

(b) The group is able (directly or indirectly) to control the application of the capital or income of the trust; or

(c) The group is capable, under a scheme, of gaining the beneficial enjoyment in paragraph (a) or the control in paragraph (b); or

(d) The trustee is accustomed, under an obligation or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the group; or

(e) The group is able to remove or appoint the trustee; or

(f) The group acquires more than a 50% stake in the income or capital of the trust.

In the context of the Trust, the only persons who are currently in a position to exercise any control over the Trust for the purposes of subsection 269-95(1) of Schedule 2F to the ITAA 1936 are:

(a) The Trustee, in its capacity as trustee of the Trust, by virtue of:

i. Its powers of appointment and revocation under the Trust Deed for the purposes of paragraphs 269-95(1)(a); and

ii. Its power to control the application of the capital or income of the Trust under the Trust Deed for the purposes of paragraph 269-95(1)(b).

(b) The Appointors of the Trust, by virtue of:

i. Their powers to remove or appoint the trustee of the Trust under the Trust Deed for the purposes of paragraph 269-95(1)(e);

ii. Their powers of removal and appointment potentially leading to the Appointors gaining beneficial enjoyment of the capital or income of the Trust and control over the application of the capital or income of the Trust for the purposes of paragraphs 269-95(1)(b) or (c); and

iii. Their powers of removal and appointment leading to the Trustee being reasonably expected to act in accordance with the directions, instructions or wishes of the Appointors for the purposes of paragraph 269-95(1)(d).

(c) The Guardians of the Trust, by virtue of:

i. Their capacity to indirectly control the application of the capital or income of the Trust for the purposes of paragraph 269-95(1)(b) via their powers to refuse amendments to the Trust (the “Veto Powers”) under the Trust Deed; and

ii. Their Veto Powers potentially creating an environment in which the trustee is accustomed or reasonably expected to act in accordance with the directions, instructions or wishes of the Guardians for the purposes of paragraph 269-95(1)(d)

(together, the “Potential Controlling Entities”).

A group does not exist

As a result of the Proposed Transaction, A and B will become shareholders of the Trustee. Therefore, in order for there to be a “group” that begins to control the Trust, the Proposed Transaction must result in either A or B forming part of a “group” that also includes at least one of the Potential Controlling Entities.

Subsection 269-95(5) of Schedule 2F to the ITAA 1936 defines a “group” as:

(a) a person; or

(b) a person and one or more associates; or

(c) two or more associates of a person.

Therefore, in assessing whether the Proposed Transaction will result in a group being formed between A or B and one or more of the Potential Controlling Entities, the pertinent issue is whether these entities are “associates” of each other.

The facts establish that A and B are not associates of each other or of any of the Appointors or Guardians of the Trust. Nor are the Appointors or Guardians of the Trust associates of each other. Accordingly, there is no group, capable of controlling the Trust, formed from any combination of A, B and any of the Appointors or Guardians of the Trust.

It follows then, that in order for there to be a new “group” that begins to control the Trust, it must be the case that either A or B is an “associate” of the Trustee for the purposes of subsection 269-95(5) of Schedule 2F to the ITAA 1936.

In undertaking this assessment, the appropriate test is contained in subsection 318(3) of the ITAA 1936. The assertion that this is the correct test to be applied is supported by the Explanatory Memorandum to the Taxation Laws Amendment (Foreign Income) Bill 1990, which confirms that the issue of whether an entity can be regarded as an “associate” of a company that is acting in its capacity as trustee of a trust is reserved specifically for subsection 318(3) of the ITAA 1936.

Section 318(3) of the ITAA 1936 relevantly states:

For the purposes of this Part, the following are associates of a trustee (in this subsection called the primary entity):

a) any entity that benefits under the trust;

b) if a natural person benefits under the trust - any entity that, if the natural person were the primary entity, would be an associate of that natural person because of subsection (1) or because of this subsection;

c) if a company is an associate of the primary entity because of paragraph (a) or (b) of this subsection - any entity that, if the company were the primary entity, would be an associate of the company because of subsection (2) or because of this subsection.

In interpreting subsection 318(3) of the ITAA 1936, paragraph 318(6)(a) relevantly provides that for the purposes of this section:

a reference to an entity benefiting under a trust is a reference to the entity benefiting, or being capable (whether by exercise of a power of appointment or otherwise) of benefiting, under the trust, either directly or through any interposed companies, partnerships or trusts.

Therefore, in determining whether either A or B are “associates” of the Trustee, the key question is whether either party benefits under the Trust. Under the Trust Deed's provisions, the only means by which either party can benefit from the Trust is if they fall under the “shareholders in beneficiary corporations” provision under the definition of “General Beneficiary” under the Trust Deed.

In the context of the Trust, it has been proposed that A and B will execute the Deeds to disclaim and renounce any interest that they currently have or may have in the future in the Trust. The decision in Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39 made clear that at law, an effective disclaimer can operate both retrospectively and prospectively. Therefore, there will be no issues with the Deed operating on both a prospective and retrospective basis from the time at which the Trust was first settled.

As such, neither A nor B benefits or is capable of benefiting under the Trust. Accordingly, neither A nor B are associates of the Trustee for the purposes of subsection 318(3) of the ITAA 1936, and as such, will not form a “group” for the purposes of subsection 269-95(5) of Schedule 2F to the ITAA 1936.

Therefore, given no new group has been formed by either A or B together with any of the Potential Controlling Entities, the Commissioner is satisfied that there are sufficient grounds to conclude that there is no new “group” that begins to control the Trust as a result of the Proposed Transaction for the purposes of section 267-45 of Schedule 2F to the ITAA 1936.

Question 2

Summary

No. Although the Company will fail the “primary tests” under subsections 165-150(1), 165-155(1) and 165-160(1) of the ITAA 1997, it will satisfy the special provisions that apply to non-fixed trusts under Subdivision 165-F of the ITAA 1997. Therefore, the Proposed Transaction will not result in the Company being unable to satisfy the “same owners” test under section 165-12 of the ITAA 1997.

Detailed reasoning

Utilisation of tax losses

Section 165-10 of the ITAA 1997 prohibits a company from deducting a tax loss unless it satisfies either the “same owners” test contained in section 165-12 of the ITAA 1997 or the “same business” test contained in section 165-13 of the ITAA 1997.

The “same owners” test

In order to satisfy the “same owners” test under section 165-12 of the ITAA 1997, a company must satisfy:

a) the 'voting power' test under subsection 165-12(2) of the ITAA 1997;

b) the 'rights to dividends' test under subsection 165-12(3) of the ITAA 1997; and

c) the 'rights to capital distributions' test under subsection 165-12(4) of the ITAA 1997.

Put simply, the above tests require that the same people hold more than 50 per cent of the voting power; rights to dividends; and rights to capital distributions in a company during the “ownership test period”. The “ownership test period” is defined in subsection 165-12(1) of the ITAA 1997 as “the period from the start of the loss year to the end of the income year”. Given it is uncertain whether and when the Company will begin to turn a profit, this ruling will proceed on the basis that the “ownership test period” equates to the period of the ruling.

Importantly, subsections 165-12(5) and (6) of the ITAA 1997 provide that in assessing whether subsections 165-12(2), (3) and (4) of the ITAA 1997 are satisfied, the “primary test” is to be applied unless one or more other companies beneficially owned shares or interests in shares in the company at any time during the ownership test period, in which case the “alternative test” will apply.

The “primary test” will apply

In assessing whether the “primary test” or the “alternative test” will apply, it must be established whether any companies beneficially owned shares or interests in shares in the Company at any time from during the “ownership test period”.

In the context of the current group, at all relevant times during the “ownership test period”, all of the shares in the Company have been held by the Trustee in its capacity as trustee of the Trust. As such, the Trustee is the registered holder and legal owner of the shares in the Company, and enjoys all the rights attendant on the ownership of the shares except those which accrue for the benefit of the Trust's beneficiaries.

Furthermore, under the terms of the Trust Deed, the Trustee does not personally benefit from its holding of the shares, save to the extent that the shares (or the dividends from the shares) may be utilised to satisfy its right of indemnity against any claims or liabilities incurred by it as Trustee.

In assessing whether this right of indemnity may constitute beneficial ownership of the Company's shares, Ford and Lee in The Law of Trusts states:

“Like any other equitable charge, the trustee's charge or lien confers on the trustee an equitable proprietary interest by way of security rather than a share of the beneficial ownership. On occasion, as in Octavo Investments Pty ltd v Knight (1979) 144 CLR 360; 27 ALR 129, the trustee's interest has been called a beneficial interest but that has only been done to emphasise that the trustee enjoys the charge or lien in his or her own right.”

Therefore, although the Trustee holds legal title and a right of indemnity over the Company's shares, these interests are not in the nature of beneficial ownership. Nor can it be said that any of the Trust's corporate beneficiaries beneficially own the Company's shares given the Trust is a discretionary trust. It follows then, that given there was no company that beneficially owned shares or interests in shares in the Company during the “ownership test period”, the “primary test” will apply in the present case.

The primary test is not satisfied

In order to satisfy the conditions in subsections 165-12(2), (3) and (4) of the ITAA 1997, the Company must satisfy the corresponding “primary tests” contained in subsections 165-150(1), 165-155(1) and 165-160(1) of the ITAA 1997. These sections provide that there will be persons who, at a particular time, hold more than 50 per cent of the relevant rights or powers if there are persons who, at the relevant time, beneficially own between them shares that carry the relevant rights or powers.

For the purposes of this analysis, the persons who may potentially carry beneficial ownership of the shares in the Company include:

a) The Trustee in its capacity as trustee of the Trust;

b) The beneficiaries of the Trust;

c) The Trustee's current shareholders (C and Company B);

d) The Trustee's prospective new shareholders (A and B);

As discussed above, neither the Trustee nor the beneficiaries of the Trust beneficially own the Company's shares for the purposes of these provisions.

Moreover, given the absence of a direct beneficial interest in the property of the Trustee in its capacity as trustee of the Trust, it cannot be said that the Trustee's shareholders (neither current nor prospective) carry beneficial ownership of the shares. This conclusion is supported by ATO Interpretive Decision 2003/508, which found that the shareholders of a corporate trustee of a non-fixed trust did not beneficially own the shares held by the corporate trustee for the purposes of the “same owners' test in section 165-12 of the ITAA 1997.

Therefore, as there are no persons who carry the requisite beneficial ownership of the Company's shares, the requirements in subsections 165-12(2), (3) and (4) of the ITAA 1997 have not been satisfied. Accordingly, the Company will prima facie fail the “same owners” test under section 165-12 of the ITAA 1997.

The “same owners test” for non-fixed trusts is satisfied

Despite the Company failing to meet the requirements of the “same owners” test under section 165-12 of the ITAA 1997, the note to paragraph 165-10(a) of the ITAA 1997 refers us to consider the special alternative provisions contained in section 165-215 of the ITAA 1997. These provisions will apply to the Company given it is a non-fixed (discretionary) trust for tax purposes, with all of its shares owned by the Trustee in its capacity as trustee.

Importantly for present purposes, subsection 165-215(1) of the ITAA 1997 provides that a company that does not meet the conditions in section 165-12 is nevertheless taken to meet those conditions if four conditions are met. These conditions will be discussed in turn below.

The first condition

Under paragraph 165-215(2)(a) of the ITAA 1997, at all times during the “ownership test period”:

(i) persons must have held fixed entitlements to all of the income and capital of

the company; and

(ii) non-fixed trusts, other than family trusts, must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the company.

In determining whether an entity is taken to have held, directly or indirectly, a fixed entitlement to a share of income or capital of a company, section 165-245 of the ITAA 1997 states that the entity must have held that fixed entitlement for the purposes of Schedule 2F to the ITAA 1936.

Section 272-10 of Schedule 2F to the ITAA 1936 relevantly states:

(1) If a shareholder in a company holds shares carrying the right to receive some or all of the dividends that may be paid by the company, the shareholder has a fixed entitlement to a share of the income of the company equal to the percentage of the total dividends represented by the dividends that the shareholder has a right to receive.

(2) If a shareholder in a company holds shares carrying the right to receive the whole or part of any distribution of the paid-up share capital of the company in the event of any return of capital to shareholders, the shareholder has a fixed entitlement to a share of the capital of the company equal to the percentage of the total distribution represented by the amount that the shareholder has a right to receive.

In the context of the current group, given the Trustee holds all of the issued share capital in the Company in its capacity as trustee of the Trust, it will constitute a person that holds fixed entitlements to all of the income and capital of the Company in satisfaction of the first requirement under paragraph 165-215(2)(a) of the ITAA 1997.

Moreover, given the Trust is a non-fixed trust that is not a family trust, the second requirement will also be satisfied.

The second condition

Under paragraph 165-215(3)(a) of the ITAA 1997, the persons holding fixed entitlements to shares of the income and capital of the company at the beginning of the loss year must have held those entitlements at all times during the ownership test period.

This condition has been satisfied in the present case, given the Trustee has held all of the shares (and relevant entitlements) in the Company at all times during the ownership test period in its capacity as trustee of the Trust.

The third condition

Under paragraphs 165-215(4)(a) and (b) of the ITAA 1997, at the beginning of the loss year, individuals must not have had (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the income or capital of the company.

In the present case, all of the shares in the Company have been held by the Trustee in its capacity as trustee of the Trust at all times during the ownership test period, including the beginning of the loss year. As the Trust is a discretionary non-fixed trust in respect of which the beneficiaries do not have any fixed entitlements to the income or capital of the trust, this condition is satisfied.

The fourth condition

Under subsection 165-215(5) of the ITAA 1997, it must be the case that, for each non-fixed trust (other than an excepted trust) that, at any time during the ownership test period, held directly or indirectly a fixed entitlement to a share of the income or capital of the company, section 267-20 of Schedule 2F to the ITAA 1936 would not have prevented the non-fixed trust from deducting the tax loss concerned if it, rather than the company, had incurred the tax loss.

The Trust is not an 'excepted trust' under the definition in section 995-1 of the ITAA 1997 and also holds all the fixed entitlements in the Company. Therefore, the Company can only satisfy the requirement in subsection 165-215(5) if, assuming the loss was incurred by the Trust, section 267-20 of Schedule 2F to the ITAA 1936 does not prevent the Trust from utilising that loss.

Section 267-20 of Schedule 2F to the ITAA 1936 effectively provides that a non-fixed trust must:

(a) if it distributed income or capital in the income year or within 2 months thereafter and in at least one of the 6 earlier income years, meet the “pattern of distribution test” contained in subdivision 269-D of Schedule 2F to the 1936 Act; and

(b) not have failed the “pattern of distribution test” in an earlier income year; and

(c) if at any time individuals have more than a 50% stake in the income or capital of the trust, meet the “50% stake test” contained in subsection 267-40(2) of Schedule 2F to the ITAA 1936; and

(d) meet the “control test” contained in section 267-45 of Schedule 2F to the ITAA 1936.

For the purposes of this ruling, it has been assumed that the “pattern of distribution test” has been satisfied. Similarly, the “50% stake test” does not apply as the Trust is a discretionary trust with no fixed entitlements held in the Trust by any individual. Therefore, given it has already been established at Question 1 above that the “control test” will be satisfied in the present case, the requirements of section 267-20 of Schedule 2F to the ITAA 1936 would not have prevented the Trust from deducting the tax loss if the Trust, rather than the Company, had incurred the loss. As such, the fourth and final condition has also been satisfied.

Given all four conditions have been met; the “same owners test” under subsection 165-215(1) of the ITAA 1997 will be satisfied. Therefore, notwithstanding its' failure to meet the requirements of the “primary tests”, the Company will nonetheless be capable of deducting its tax losses under section 165-10 of the ITAA 1997 given the special alternative provisions in section 165-215 of the ITAA 1997 have been satisfied.

Application to future periods

The Company will need to test whether it satisfies the “same owners” test for loss recoupment years beyond the year ending 30 June 2020, that is, for ownership test periods that end beyond 30 June 2020. The Company is however able to rely on the Commissioner's determination on whether the Proposed Transaction has triggered a failure of the “same owners” test for the purposes of applying the “same owners” test in respect of deductions for tax and capital losses in future years and in respect of future ownership test periods.

Question 3

Summary

No. The execution of the Deeds by each of A and B will not give rise to CGT event E1 in section 104-55 of the ITAA 1997 as it is a valid exercise of the trustee's powers contained in the Trust Deed and satisfies the continuity test stipulated in Commissioner of Taxation v Commercial Nominees of Australia [1999] FCA 1455; 99 ATC 5115; (1999) 43 ATR 42 (Commercial Nominees).

Detailed reasoning

Subsection 104-55(1) of the ITAA 1997 provides that:

CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement.

In the context of trust variations, one issue that has arisen regarding the scope of CGT event E1 is whether an existing trust can change in such a fundamental way so as to constitute a 'resettlement' of the trust, with the consequence that although the trust has not terminated for trust law purposes, a new trust has nevertheless been 'created' for the purposes of subsection 104-55(1).

The leading authority on this issue is the decision of the majority in Commissioner of Taxation v David Clark; Commissioner of Taxation v Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark). In Clark, it was established that the main test for determining whether resettlement of a trust has occurred involves a characterisation and evaluation of the continuity of the trust estate. In applying this test, their Honours cited the High Court case of Commercial Nominees, where it was held that:

[t]he three main indicia of continuity [for the purposes of the taxing regime for superannuation funds] are the constitution of the trusts under which the fund (if a trust fund) operated, the trust property and membership. Changes in one or more of those matters must be such as to terminate the existence of the eligible entity, or to produce the result that it does not derive the income in question, to destroy the necessary continuity [emphasis added by Edmonds and Gordon JJ].

Following Clark, the Commissioner issued Taxation Determination 2012/21 (TD 2012/21), in which the administrative impact of the decision was explained. In that document, the Commissioner asserts that continuity of a trust estate will be maintained so long as the trust is not terminated for trust law purposes.

Furthermore, 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 Trust Deed will not result in the trust being terminated, irrespective of the extent of the amendments, so long as the amendments are properly supported by the power.

In applying the three main indicia of continuity outlined in Commercial Nominees to the present case, it is clear that execution of the Deeds will have no effect on the constitution of the Trust, nor its property or membership. More specifically, they will not change either the discretionary nature or the purpose of the Trust, nor the rights and responsibilities of the Trustee. Accordingly, execution of the proposed Deeds by A and B will not constitute a resettlement of the Trust, and will not give rise to CGT event E1 under section 104-55 of the ITAA 1997.