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Edited version of your written advice
Authorisation Number: 1051376824577
Date of advice: 28 May 2018
Ruling
Subject: Amending a trust vesting date
Question
Will amending the Trust vesting date cause the Trust to vest and give rise to a CGT event?
Answer
No
This ruling applies for the following period:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Trust settled on X April 19XX.
The Trustee of the Trust is a company.
The beneficiaries of the Trust are:
a. Person A
b. Person B, the spouse of Person A; and
c. Any child of Person A born before the Distribution Date.
Person A remains married to Person B and together they have two children, Person C (born X July 19XX) and Person D (born X December 19XX).
The current vesting day is defined in Clause 2 of the Trust deed as the earlier of either or (i) 30 June 20XX; and (ii) 20 years after the last surviving child of Queen Elizabeth II dies. But since (i) will necessarily occur before (ii), the Distribution Date is 30 June 20XX.
Under clause 23 of the Trust deed, the Trustee has power to vary the trusts declared in the Trust deed in any manner whatsoever subject only to the provisos in subclause (i) to (iv), which include a proviso (in subclause (ii)) that the power may not be exercised in a way that contravenes the rule against perpetuities.
To the best of the Trustee’s knowledge, no amendments have been made to the trust deed since the Trust settled.
The Trustee and the beneficiaries all wish to post pone the distribution date beyond 30 June 20XX, in a way that does not infringe the rule again perpetuities.
Postponing the vesting date will not cause the Trustee, the Settlor or anyone who has given property to the trustee, to acquire a beneficial interest in the Trust Fund or any income from the Trust Fund. This is because postponing the vesting date will not change the current situation, which is that the trustee:
● Is prohibited (under clause 22) from distributing any income or capital to the Settlor or anyone else who has transferred assets to the trust: but
● Otherwise generally has absolute discretion as to which beneficiaries and in what amounts it will distribute income and capital of the trust.
Postponing the vesting date will not cause the entitlement of a beneficiary to be divested or modified.
At the time that the written declaration is made there will not be a mortgage or other security over any of the trust’s assets.
Postponing the vesting date will not affect the rights/remedies of any encumbrancer.
The Trustee will make a written declaration to the effect that the Distribution Date is to be changed from 30 June 20XX to a later date that is within the applicable perpetuity period (new vesting date).
You have not yet determined a specific date for the new vesting date; however the new vesting date will fall within the perpetuity period.
Relevant legislative provisions
Income Tax Assessment Act 1997 paragraph 104-10(1)
Income Tax Assessment Act 1997 paragraph 104-55(1)
Income Tax Assessment Act 1997 paragraph 104-60(1)
Reasons for decision
A trust resettlement is a trust law concept and occurs 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 tax could accrue to the trustee and beneficiaries as a result of various CGT events.
A trust resettlement is a trust law concept and occurs 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 tax could accrue to the trustee and beneficiaries as a result of various CGT events.
Subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that CGT event A1 happens if you dispose of a CGT asset where the entity stops being the asset’s owner.
Subsection 104-55(1) of the ITAA 1997 provides that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement.
Subsection 104-60(1) of the ITAA 1997 provides that CGT event E2 happens if you transfer a CGT asset to an existing trust.
As per the Federal Commissioner of Taxation v. Clark (2011) 2011 ATC 20-236; [2011] FCAFC 5; (2011) 190 FCR 206; [2011] ALMD 2737; (2011) 79 ATR 550 (Clark’s case) a trust will not be terminated provided that there is some degree of continuity established of the trust and any amendment to the trust is made in accordance with a power of amendment afforded to the Trustee.
Following Clark’s case, the Commissioner issued Taxation Determination 2012/21 (TD 2012/21), which provides that a valid amendment to a trust pursuant to an existing power will not result in termination of the trust and therefore will not result in CGT events E1 or E2 happening when:
● an amendment is made pursuant to an existing power;
● an amendment does not cause the trust to terminate for trust law purposes; and
● the effect of the amendment does not lead to a particular asset being subject to a separate charter of rights and obligations, such as to give rise to the conclusion that the asset has been settled on terms of a different trust.
TD 2012/21 provides that a mere extension of the terms of a trust is consistent with a continuing trust when:
● the trust deed confers an express power to alter the termination date
● the trust deed and surrounding circumstances do not indicate that a particular trust period was a fundament feature of the particular trust relationship.
● other accompanying circumstances do not indicate a fundamental change to the trust.
Under clause 23 of the Trust deed, the Trustee has power to vary the trusts declared in the Trust deed in any manner whatsoever subject only to the provisos in subclause (i) to (iv), which include a proviso (in subclause (ii)) that the power may not be exercised in a way that contravenes the rule against perpetuities.
Extending the trust vesting period in accordance with the amended deed will allow the trust vesting period to be extended beyond 30 June 20XX and will not offend the rule against perpetuities.
Therefore, it is considered that the Trustee’s amendment is a valid exercise of a power of amendment and the amendments will not cause the Trust to vest or trigger any CGT events.