Edited version of your written advice

Authorisation Number: 1051232877290

Date of advice: 7 June 2017

Ruling

Subject: CGT Event E1 & E2

Question 1

Will CGT events E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997) occur on the removal of the current appointer of the relevant trust and the appointment of a new appointer and guardian pursuant to and in accordance with the trust deed of the relevant trust?

Answer

No.

This ruling applies for the following period:

1 July 2016 to 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You are a discretionary trust.

You are an Australian resident for income tax purposes.

Company A is the trustee of the trust.

Company A is owned by Entity 1 and Entity 2.

Both Entity 1 and Entity 2 are Australian residents for income tax purposes.

You are proposing to change the appointer and guardian for estate planning purposes.

Company B is the current appointer and guardian of the trust.

The new appointer and guardian will be changed via a resolution to change appointor by the directors of Company B (the current appointor) and execute a Memorandum of Appointment to effect the change for Company C to become the new appointor as per the clauses in the trust deed.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-55 and

Income Tax Assessment Act 1997 section 104-60.

Reasons for decision

Division 104 of the ITAA 1997 sets out all the CGT events for which you can make a capital gain or loss.

CGT event E1 happens under subsection 104-55(1) of the ITAA 1997 if you create a trust over a CGT asset by declaration or settlement.

CGT event E2 happens under subsection 104-60(1) of the ITAA 1997 if you transfer a CGT asset to an existing trust.

The Commissioner considered the issue of whether CGT event E1 or E2 would apply if the terms of the trust are changed due to a valid exercise of power in the trust deed in Taxation Determination TD 2012/21 Income Tax: does CGT event E1 or E2 in section 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 a power contained within the trust's constituent document or varied with the approval of a relevant court?

Paragraph 1 of TD 2012/21 answers this question by stating the following:

No. in these circumstances neither CGT event E1 nor CGT event E2 in sections 104-55 or 104-60 of the ITAA 1997 happens 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 or rights and obligations such as to give to the conclusion that the asset has been settled on terms of a different trust.

In your case, you are proposing to change the appointer and guardian for estate planning purposes. You have provided the deed of settlement which at a specific clause of the deed allows any other person or persons who is specifically so appointed and authorised by deed, Will or memorandum in writing executed by the Appointer. Furthermore, a specific clause of the deed provides a power of amendment for the trustee.

Consequently, CGT events E1 & E2 will not occur on the change of appointer and guardian of the trust.