| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1051595120041
Date of advice: 15 October 2019
Ruling
Subject: Trust resettlement
Question
Will the proposed changes to the Trust Deed cause a resettlement of the trust or give rise to a Capital Gains Tax (CGT) CGT event?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Trust was established in the 19XX's by deed of settlement executed by the settlor and the original trustees.
The Trust Fund comprises a settled sum (paid by the settlor to the original trustees upon the establishment of the trust) and all other property at any time transferred to and accepted by the trustees to the trust fund including the investments from the time representing such moneys and property.
By transfer the original trustees acquired (as joint tenants) a property as an asset of the trust. They remain the registered proprietors of this property in that trustee capacity.
Proposed Transaction
It is proposed that Trustee A resign (pursuant to the trust deed), remove Trustee B (pursuant to the trust deed) and appoint a corporate trustee in the original trustees place.
A shelf company will act as the Corporate Trustee. It will be a $2 company with two shareholders and two directors.
The directors and shareholders will be children of the previous Trustee A.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-55
Income Tax Assessment Act 1997 section 104-60
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.
Application to your circumstances
The Trust Deed in question allows for the parent to remove a trustee and resign as a trustee 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 that will occur in the proposed transaction. No other CGT events are considered to arise. Therefore there will not be a resettlement of the trust.