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Edited version of your written advice
Authorisation Number: 1051329030538
Date of advice: 25 January 2018
Ruling
Question
Will execution of the Draft Documents constitute the creation of a new trust or a transfer of a CGT asset, with the meanings of A1, E1 or E2 of the Income Tax Assessment Act 1997?
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.
There were a number of Deeds of Amendment since the original trust deed was executed.
The trustee with the consent of the appointer intends to amend the trust deed:
● to entrench equal distributions to specified beneficiaries, in terms of both income and capital.
● to prevent any changes to the above position without the consent of all the specified beneficiaries, including by limiting any power to change the trustee.
● to allow the appointor during their lifetime to have the power to nominate an appointor of this trust in place of themselves in any specified circumstances.
Following the execution of the proposed Deed of Amendment as per the above, the Appointor will execute a Nomination of Appointor of the Trust.
No assets are being sold or disposed of as a result of the Deed of Amendment and/or the Nomination of Appointor.
The trust deed gives the trustee the power to make the proposed amendments and the trustee will be exercising their power.
Once the Deed of Amendment is executed, the appointor will have the power execute the Nomination of Appointor and the Appointor will be exercising their power.
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA 1997) section 104-1
Income Tax Assessment Act 1997 (ITAA 1997) section 104-55
Income Tax Assessment Act 1997 (ITAA 1997) section 104-60
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our 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 allows for the Trustee to amend the deed and in this case it is accepted that neither of the two exclusions mentioned above apply. An A1 CGT event occurs when an asset is disposed of. No assets are being sold or disposed of as a result of the Deed of Amendment and/or the Nomination of Appointor. Consequently, neither CGT event A1, E1 nor CGT event E2 arises in relation to the changes proposed.
Accordingly, there is no trust resettlement as a result of the change to the trust deed.