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Edited version of your written advice
Authorisation Number: 1051227481591
Date of Advice: 1 June 2017
Ruling
Subject: CGT event
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
The X Trust (trust) was created by deed.
The trust has a term of XX years with the vesting date being XX/XX/XXXX.
By a deed XX Pty Ltd was replaced by XXX Pty Ltd as trustee.
After the death of the original appointor, the appointor is the legal personal representative of the original appointor.
The legal personal representatives of the deceased are XX and XX.
The primary beneficiaries of the trust are:
(a) Father
(b) The wife or widow of the father
(c) The children and grandchildren of the father born before the vesting day
(d) The wife, husband, widow or widower of the children and grandchildren of the father born before the vesting day
(e) Certain other trusts; and
(f) Certain companies.
The default income beneficiaries are the children of the father.
The default capital beneficiaries on the vesting day are the children of the father, equally, but if any child of the father dies before the vesting day then that child's children take equally their parents' share.
Clause XX of the trust deed states
At any time during the life of the said Father and prior to the termination of the trusts hereby declared the Trustee may from time to time in his absolute and unfettered discretion notwithstanding anything to the contrary herein contained but provided that one month's notice of his intention to vary the trusts as hereafter provided shall first have been given to the said Father if he shall then be living but if he shall not then be living then to his legal personal representatives by deed add to vary revoke or amend the trusts or any provisions hereof in any manner whatsoever including but without in any way limiting the generality of the foregoing, enlarging any category of beneficiaries and adding a further class of beneficiaries SUBJECT ALWAYS to no share or benefit from or interest in or under the Trust Fund at any time being in any way acquired by or passing to the Trustee or Settlor his executors or administrators consequent upon or pursuant to any such variation aforesaid nor so far as concerns any money or property given to the Trustee as capital on the trusts hereof in favour of the person so giving the money or property PROVIDED ALWAYS that the exercise of the Trustee's discretion under this clause shall be subject in all respects to the rule of law known as the Rule against perpetuities to the intent that trusts shall if varied provide for the persons entitled to the capital of the Trust Fund necessarily attaining vested interests on or before the original Vesting Day fixed by this deed provided lastly that no variation shall be made which shall affect prejudice or alter in any way the interest of any beneficiary in income to which the beneficiary has become entitled pursuant to clause 3.
The trustee proposes to vary the trust deed by:
● Deleting the current definition of “The Vesting Day” in Clause 1(d) of the Deed and replacing it with the following new definition:
● “The Vesting Day” means earlier of:
(i) the day nominated in writing by the Trustee; or
(ii) the day on which the Trust must end to avoid breaching the Rule against Perpetuities.
The legal personal representatives of the deceased Father received at least one month notice of the Trustee's intention to amend the Deed in the manner proposed and consent to the amendment.
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 Deed of Amendment. 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 amendment.