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Authorisation Number: 1051299079876

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Date of advice: 26 October 2017

Ruling

Subject: Capital gains tax - trust – resettlement

Question:

Will any capital gains tax event occur when the Deed of Amendment is implemented for the Unit Trust?

Answer:

No.

This ruling applies for the following period

Income year ending 30 June 2018

The scheme commences on

1 July 2017.

Relevant facts and circumstances

The Unit Trust was established by deed (Trust Deed) after 20 September 1985 with Company A as the trustee for the Unit Trust (the Trustee).

The Unit Trust issued XX,XXX units to numerous unit holders who held varying unit holdings.

The Trust Deed includes a clause which provides the Trustee with the power to revoke, add, vary or amend the Trust Deed if the following occurs:

● with special consent from the unit holders; and

● the changes to the Trust Deed will not affect the beneficial entitlement of the unit holders to any amount set aside for any unit holder prior to the variation, alteration or addition.

The Unit Trust issued units to various unit holders over the years; however the units have either been redeemed or transferred. Currently the sole unit holder is Company B as trustee for a fund (the Unit Holder).

The current Trustee and Unit Holder now wish to amend the Trust Deed and a Draft Deed of Amendment has been prepared for the purpose of amending the Deed to satisfy the criteria of a “fixed trust” under section 3A(3B) of the Land Tax Management Act NSW 1956 (the Land Act).

The following information has been sourced from the Draft Deed of Amendment:

● The parties are:

● theTrustee); and

● the Unit Holder;

● Under the Trust Deed clause mentioned above, the Trustee may make changes to the Trust Deed with the consent of the unit holders if those changes do not affect the beneficial entitlement of the unit holders prior to the date of the variation, alteration or addition to the Trust Deed;

● The Trustee has determined that the terms of the Trust Deed should be varied in accordance with the Draft Deed of Amendment and proposes to vary the Trust Deed accordingly;

● The Trustee has determined that the proposed changes to the Trust Deed in accordance with the Draft Deed of Amendment will not affect the beneficial entitlement to any amount set aside for any unit holder; and

● The Unit Holder has consented to the variation, alteration or addition to the Trust Deed as contained in the Draft Deed of Amendment and has agreed to join the Draft Deed of Amendment to confirm their consent.

The Trustee wants to amend the Trust Deed and has determined that the proposed changes to the Trust Deed in accordance with the Draft Deed of Amendment will not affect the beneficial entitlements of the Unit Holder.

The Unit Holder, being the sole registered holder of all issued units, will consent to the changes to the Trust Deed in accordance with the Draft Deed of Amendment and will join in the Deed of Amendment to confirm their consent.

No asset/s will be transferred as a result of the changes under the Deed of Amendment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

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 capital gains tax (CGT) events.

The Commissioner has released Taxation Determination TD 2012/21 (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.

In this situation, Clause X.X of the Deed allows for the Trustee to vary, alter or add to the Trust Deed with the consent of the unit holders.

After reviewing the changes to the Trust Deed contained in the Draft Deed of Amendment, it is considered that the changes to the Trust Deed are within the powers of the Trustee under Clause X.X of the Trust Deed. Therefore, the continuity of the Unit Trust will be maintained for trust law purposes because the proposed changes are within the Trustee’s powers contained in the Deed.

In this case it is accepted that neither of the two exclusions mentioned above will apply as a result of the Deed of Amendment being implemented. Therefore, neither CGT event E1 nor CGT event E2 will occur as a result of the implementation of the Deed of Amendment. It is also considered that no other CGT event will occur as a result of the implementation of the Deed of Amendment.