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Edited version of your written advice
Authorisation Number: 1051328451997
Date of advice: 22 January 2018
Ruling
Question
Do the proposed amendments to the trust deed cause a CGT event, including CGT event E1 or E2, to happen?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
The Trust was established at a point in time.
The trustee with the consent of the appointers will amend the trust deed in order to satisfy the criteria of a fixed trust, under section 3A(3B) of the Land Tax Management Act NSW 1956.
No assets are being transferred.
The trustee has the power in the trust deed to make such proposed amendments and will be exercising their power.
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 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 in question allows for the Trustee to amend the deed and in this case it is accepted that neither of the two exclusions mentioned above apply. Consequently, neither CGT event E1 nor CGT event E2 arises in relation to the changes proposed. No other CGT events are considered to arise. Accordingly, there is no trust resettlement as a result of the change to the trust deed.