Edited version of private advice

Authorisation Number: 1051945150459

Date of advice: 3 February 2022

Ruling

Subject: Fixed entitlements

Issue 1

If the Proposed Amendments are implemented, is the C Trust, a fixed trust for the purposes section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936)?

Question 1

If the Proposed Amendments are implemented, will the beneficiaries of the C Trust have fixed entitlements to all of the income and capital of Feeder Trust as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and subsection 272-5(1) of Schedule 2F to the ITAA 1936?

Answer

Yes.

Issue 2

If the Proposed Amendments are implemented, will the beneficiaries of the C Trust have a fixed interest in the trust holding for the purposes of former section 160APHL of the ITAA 1936?

Question 2

If the Proposed Amendments are implemented, will the beneficiaries of the C Trust have a vested and indefeasible interest in so much of the corpus of the C Trust as is comprised by the trust holding, for the purposes of former subsection 160APHL(11) of the ITAA 1936?

Answer

No.

Question 3

If the Proposed Amendments are implemented, will the Commissioner exercise the discretion in former subsection 160APHL(14) of the ITAA 1936 to treat the beneficiaries of the C Trust as having a vested and indefeasible interest in so much of the corpus of the C Trust as is comprised by the trust holding?

Answer

Yes.

Issue 3

If the Proposed Amendments are implemented, will a specified CGT event happen as a result of the execution of the Proposed Amendments to the C Trust trust deed?

Question 4

If the Proposed Amendments are implemented, will CGT event A1 (in section 104-10), CGT event E1 (in section 104-55), CGT event E2 (in section 104-60), CGT Event E3 (in section 104-65) or CGT event E5 (in section 104-75) (all of the ITAA 1997)) happen if the Proposed Amendments to the C Trust trust deed are executed?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XB

Year ending 30 June 20XC

Year ending 30 June 20XD

Year ending 30 June 20XE

The scheme commences on

1 July 20XA

This description of facts is based on the following documents. The documents form part of and are to be read with this description. The relevant documents are:

•         The Private Ruling Application dated X XXXX 20XA (and attachments);

•         The emails from the ATO; and

•         The emails to the ATO from the client representative.

The following abbreviations and definitions are referred to in this document:

In relation to the C Trust and related trusts:

•         The Trustee L is the Trustee and Manager of the Trusts.

•         The trustee of the L Trust is the sole Holder of the A Trust. It holds 1 sponsor unit and X,XXX,XXX ordinary units in the A Trust and committed $X,XXX,XXX of capital.

•         The L Trust is a discretionary family trust controlled by Taxpayer L.

•         The trustee of the A Trust is the sole Holder of the B Trust. It holds 1 sponsor unit and XX,XXX,XXX ordinary units in the B Trust and committed $XX,XXX,XXX of capital.

•         The trustee of the B Trust is the sole Holder of the C Trust. It holds 1 sponsor unit and XX,XXX,XXX ordinary units in the C Trust and committed $XX,XXX,XXX of capital.

•         The trustee of the C Trust holds one main asset, being H Ltd Shares (XX,XXX,XXX Series C Shares in H Ltd). It acquired its H Ltd Shares for a subscription price of $XX,XXX,XXX pursuant to a Subscription Agreement between the C Trust and H Ltd (H Ltd Subscription Agreement).

•         The Former Manager was deregistered on XX XXX 20XA and replaced as Manager by L Pty Ltd. The Manager is a company controlled by Taxpayer L. Taxpayer L is the sole director and shareholder of the Manager.

•         The Trustee and Holders in the Trusts are Australian tax residents.

•         The Trusts do not currently have any carried forward tax or capital losses. There is no current expectation that the Trusts will have tax or capital losses, bad debts or debt/equity swap losses.

•         Units in the Trusts are not listed on any stock exchange and will not be listed during the Ruling Period.

•         No amendments to the Trust Deeds have been made since the Trusts were established.

•         Since the establishment of the Trusts, there have not been any redemptions of units in the Trusts.

•         The Trusts are not registered as managed investment schemes (MIS) under Chapter 5C of the Corporations Act. It is not intended for any of the Trusts to become an MIS.

•         Pursuant to the Proposed Amendments to the B Trust trust deed:

­   "Holder" means a person recorded on the Register as the holder of Units.

­   The Trustee has no power to issue new units of differing classes;

­   In accordance with clause 6.4 of the Deed, the only classes of units that the Trustee will issue together with the rights attaching to the classes are those specified in Schedule 3."

­   Clause 1 of Schedule 3 defines the class of Units as currently being Sponsor Units and Ordinary Units. Sponsor Units carry the same rights and entitlements as Ordinary Units. The Trustee must not issue any additional Units other than Ordinary Units.

­   Subclause 6.1 states that the Trustee may only issue additional Units if the issue price per Unit Is equal to the Net Unit Value.

­   "Net Unit Value" is defined in Clause 2.1 as

Means in respect to a Unit, the Net Trust Value divided by the number of units.

­   Net Trust Value is defined as:

Means the net asset value of the Trust determined in accordance with the Accounting Standards.

­   Accounting Standards are defined as:

Accounting Standards means the accounting standards, statements of accounting concepts or authoritative pronouncements of the Australian Accounting Standards Board

•         Similarly, in accordance with paragraph (c) in clause 8.1 as follows:

(c) The Trustee may only determine the Redemption Price for a redemption in accordance with clause 8.2.

•         Clause 8.2 reads as:

The Redemption Price is the Net Unit Value of the Unit as at the date the Unit is redeemed.

•         Income and capital entitlements are vested in the Holders and distributions must occur in proportion to the number of Units held by the Holders in accordance with clauses 13.1, 13.3,13.11, 31, 32.3 and 32.4 of the Deed;

•         The Trustee has no power to stream income or capital;

•         The power of amendment contained in Clause 35 contains sufficient restrictions such that, of itself, it does not contain a power that would defease the interest of the Holders in the income and capital of the Trust for the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936. This is further supported by clause 47 which states, amongst other things, that the Trust must remain a fixed trust.

Assumptions

Throughout the Ruling Period, in respect of the C Trust:

•         The Proposed Amendments will be made to the trust deed by the execution of the draft Deed of Variation that has been provided to the ATO;

•         The trust will not be an MIT or an AMIT.

•         Only two classes of units will be on issue in the trust (Sponsor Units and Ordinary Units), and both classes of units will have the same rights and entitlements as Ordinary Units.

•         Any further units in the trust will be issued in accordance with the savings rule in former subsection 160APHL(13) of the ITAA 1936.

•         The trustee will not exercise a power capable of defeating a Holder's interest to defeat a Holder's interest in the income or capital of the trust.

•         An arrangement has not been, and will not be, entered into which would result in:

­   a 'related payment' under former section 160APHN of the ITAA 1936;

­   a Holder having materially diminished risks of loss or opportunities for gain of less than 30% in respect of shares held by the trustee of the trust (refer to former section 160APHM of the ITAA 1936);

­   a Holder not being sufficiently exposed to the risk of loss or opportunity for gain in respect of the shares in the trust as explained by ATO Interpretative Decision ATO ID 2014/10;

­   the Commissioner making a determination under paragraph 177EA(5)(b) of the ITAA 1936;

­   any of paragraphs 207-150(1)(c) to (h) of the ITAA 1997 (inclusive) applying; or

­   fraud or evasion.

Relevant legislative provisions

Income Tax Assessment Act 1936

Division 272

Section 272-5 of Schedule 2F

Subsection 272-5(1) of Schedule 2F

Subsection 272-5(2) of Schedule 2F

Subsection 272-5(3) of Schedule 2F

Subsection 272-59(2) of Schedule 2F

Section 272-65 of Schedule 2F

former section 160APHL

former subsection 160APHL(11)

former subsection 160APHL(13)

former subsection 160APHL(14)

former subsections 160APHL(14)(a), (b) and (c)

Paragraph 177EA(5)(b)

Income Tax Assessment Act 1997

Section 104-10

Section 104-55

Section 104-60

Section 104-65

Section 104-75

Paragraphs 207-150(1)(c) to (h)

Subsection 995-1(1)

Taxation Administration Act 1953

section 359-5

Reasons for decision

Issue 1

Question 1

Summary

It is reasonable to conclude, based on the proposed "trust instrument" of the C Trust, that for the purposes of subsection 272-5(1), the beneficiaries (Holders) of the C Trust do have fixed entitlements to all of the income and capital of the Trust.

[All legislative references are to the Income Tax Assessment Act 1936 (ITAA 1936) unless otherwise stated.]

Detailed Reasoning

Generally

A 'fixed trust' is defined in subsection 995-1(1) of the ITAA 1997, and section 272-65. That definition provides that:

A trust is a fixed trust if persons have fixed entitlements to all of the income and capital of the trust.

The definition of 'fixed entitlement' in subsection 995-1(1) of the ITAA 1997 provides that 'an entity has a fixed entitlement to a share of the income or capital of a trust if the entity has a fixed entitlement to that share within the meaning of Division 272 in Schedule 2F to the Income Tax Assessment Act 1936.'

Meaning of the words 'vested and indefeasible'

The terms 'vested and indefeasible' are not defined in the ITAA 1936 or ITAA 1997.

The Explanatory Memorandum to the Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997 (EM) discusses the nature of a 'vested interest':

13.4 A person has a vested interest in something if the person has a present right relating to the thing. Stated simply, a vested interest is one that is bound to take effect in possession at some point in time. A vested interest is to be contrasted with a 'contingent' interest which may never fall into possession. If an interest of a beneficiary in income or capital is the subject of a condition precedent, so that an event must occur before the interest becomes vested, the beneficiary does not have a vested interest to the income or capital since such an interest is instead 'contingent' upon the event occurring.

13.5 In traditional legal analysis, a person can be said to be either 'vested in possession' or 'vested in interest'. A present interest, i.e. one that is being enjoyed, is said to be 'vested in possession'; a future interest, i.e. one which gives its holder a present right to a future enjoyment, is said to be a 'vested interest'. A person is vested in possession where the person has a right to immediate possession or enjoyment of the thing in question. In the definition of fixed entitlement, 'vested' includes both vested in possession and vested in interest.

13.6 Because vested interests include future interests, a person can have a vested interest in a thing even though the person's actual possession and enjoyment of the thing is delayed until some time in the future.

This is reflected in paragraph 13 of the Practical Compliance Guideline PCG 2016/16 Fixed entitlements and fixed trusts (PCG 2016/16).

The EM also addresses when a vested interest is indefeasible:

13.7 A vested interest is indefeasible where, in effect, it is not able to be lost. A vested interest is defeasible where it is subject to a condition subsequent that may lead to the entitlement being divested. A condition subsequent is an event that could occur after the interest is vested that would result in the entitlement being defeated, for example, on the occurrence of an event or the exercise of a power. For example, where a beneficiary's vested interest is able to be taken away by the exercise of a power by the trustee or any other person, the interest will not be a fixed entitlement.

'Vested and indefeasible', for the purposes of Schedule 2F to the ITAA 1936, has not been judicially considered, other than in the limited context of amending the constitution of a registered MIS under section 601GC of the Corporations Act: see Colonial First State Investments Ltd v. Commissioner of Taxation [2011] FCA 16; (2011) 192 FCR 298; 81 ATR 772; ATC 20-235.

Vested interests

Trust instrument'

It is an essential element of subsection 272-5(1) of that, in order to have a fixed entitlement to a share of income or capital, there must be a vested or indefeasible interest 'under a trust instrument'.

The determining factor in deciding whether fixed entitlements exist will be the terms of the trust instrument under which the trust is constituted. Neither the form of the trust nor the labels that are attached to it can determine this question.

For the purposes of subsection 272-5(1), the Commissioner accepts that a 'trust instrument' includes:

...a deed or constitution as supported by documentation such as a Product Disclosure Statement, Investment Memorandum or other document that modifies or supplements the terms of the trust set out in the deed or constitution.

For the purposes of subsection 272-5(1), the trust instrument consists of the C Trust trust deed, as amended by the draft Deed of Variation provided to the ATO on XX XXXX 20XA. An Assumption has been included that the Proposed Amendments will be made to the trust deed by the execution of the draft Deed of Variation that has been provided to the ATO.

For the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936, it is accepted that the C Trust trust deed (as amended by the Proposed Amendments) provides beneficiaries with a vested interest in the income and capital of the trust (clauses 3 and 4 generally; clause 13 for income; and clauses 31 and 32 for capital).

No defeasible powers in the Trust Deed due to the 'savings rule' and Assumptions applying

Under subsection 272-5(1) a person will be taken to have a fixed entitlement to a share of the income or capital of a trust if they have a vested and indefeasible interest under the trust instrument.

Under the C Trust trust deed (as amended by the Proposed Amendments), the Holders in the Trust are considered to have a vested and indefeasible interest in all of the income and capital of the Trust as the trust instrument will provide that:

•         Clause 6 (Issue of Units)

•         The current clause 6.1 effectively provides that additional Units may be issued by the Trustee to persons in its absolute discretion. Subclause 6.1(a) is proposed to be amended and replaced it with the following:

"The Trustee may only issue additional Units if the issue price per Unit Is equal to the Net Unit Value."

•         Clause 2.1 defines the term 'Net Unit Value' by indirect reference to Australian accounting principles.

Paragraphs 18 and 19 of PCG 2016/16 confirm that the 'savings rule' in subsection 272-5(2) will apply in this circumstance.

•         In addition, the Assumptions included in this Ruling include that:

­   Additional Units will be issued and Units will be redeemed on a basis that will satisfy subsection 272-5(2) and former subsection 160APHL(13); and

­   The Trustee will not exercise a power capable of defeating a Holder's interest to defeat a Holder's interest in the income or capital of the Trust.

As the 'savings rule' will apply to the ability of the Trustee to issue additional Units this power will not constitute a defeasible power.

•         Clause 8 (Redemption of Units) -

­   The current clause 8 effectively provides that Units may be redeemed by the Trustee. Clause 8.2 is proposed to be amended to require that the Redemption Price per Unit is the Net Unit Value of the Unit as at the date the Unit is redeemed. Proposed clause 2.1 defines the term 'Net Unit Value'.

Paragraphs 18 and 19 of PCG 2016/16 confirm that the 'savings rule' in subsection 272-5(2) will apply in this circumstance.

•         In addition, the Assumptions included in this Ruling include that:

­   Additional Units will be issued on a basis that will satisfy subsection 272-5(2) and former subsection 160APHL(13); and

­   The Trustee will not exercise a power capable of defeating a Holder's interest to defeat a Holder's interest in the income or capital of the Trust.

As the 'savings rule' will apply to the ability of the Trustee to redeem Units this power will not constitute a defeasible power.

Conclusion

For the reasons stated, above, it is reasonable to conclude, based on the C Trust's trust deed (as amended by the Proposed Amendments), that for the purposes of subsection 272-5(1), the beneficiaries (Holders) of the Trust do have fixed entitlements to the income and capital of the Trust.

This is due to the operation of the 'savings rule' in subsection 272-5(2) and the inclusion of the Assumptions.

Issue 2

Question 2

Summary

The terms of the existing trust instrument do not provide the beneficiaries with a vested and indefeasible interest in so much of the corpus of the trust as is comprised by the trust holding, for the purposes of former subsection 160APHL(11) of the ITAA 1936.

Detailed reasoning

A "fixed interest" in the trust holding is defined in former subsection 160APHL(11) of the ITAA 1936 as "a vested and indefeasible interest in so much of the corpus of the trust as is comprised by the trust holding." [emphasis added]

Is there an 'interest in so much of the corpus of the trust as is comprised by the trust holding'?

Former section 160APHL provides that in calculating the extent of a beneficiary's interest, it is necessary to distinguish between the interest of a beneficiary in shares held by a widely-held trust (as defined below), and the interest of a beneficiary in shares held by other trusts.

The C Trust is not a 'widely held trust' for the purposes of former section 160APHD of the ITAA 1936.

This necessitates that a 'look through' approach will be required to determine the interest that a beneficiary has in each of the underlying shares in the Trust [refer to paragraphs 4.26, 4.77 and 4.88 of the EM with accompanied the Taxation Laws Amendment Bill (No. 2) 1999.]

Although the method of calculating the interest that a beneficiary has in the trust holding differs as between widely-held trusts and trusts other than widely-held trusts, the beneficiaries of both types of trusts do have an interest in the trust holding.

The proposed Trust Deed defines Property at clause 2.1 as 'all property, rights and income of the Trust.' As such, any shares held by the Trustee of the Trust would constitute 'Trust Property'. The term 'Trust Property' equates to the 'corpus' of the trust for current purposes.

Clause 4.2(a) of the proposed Trust Deed relevantly provides that, '...A Unit confers on its Holder an undivided beneficial interest in the Property as a whole, subject to Trust Liabilities, not in parts or single assets.'

The undivided beneficial interest in the Trust Property which Holders will have will constitute the requisite interest in the corpus of the trust as is comprised by the trust holding for current purposes.

No vested and indefeasible interest

As previously advised in our telephone conversation conducted 25 November 2021, we consider the effect of the High Court's judgement in CPT Custodian case is that it is not possible for a beneficiary of the C Trust to have a Fixed Interest for the purposes of former subsection 160APHL(11) of the ITAA 1936. This is because a trustee's indemnity results in the trustee having an interest in the trust's property.

Conclusion

Therefore, it follows that the Holders of the Trust do not have a vested and indefeasible interest in so much of the corpus (capital) of the C Trust as is comprised by the trust holding.

Question 3

Summary

The Commissioner considers that it is reasonable to exercise the discretion in former subsection 160APHL(14) of the ITAA 1936 to treat the beneficiaries of the C Trust as having a vested and indefeasible interest in so much of the corpus of the C Trust as is comprised by the trust holding.

Detailed reasoning

In view of the conclusion above that the beneficiaries (Holders) of the C Trust do not have a vested and indefeasible interest in so much of the corpus of the C Trust as is comprised by the trust holding pursuant to former subsection 160APHL(11) of the ITAA 1936, the only way that the beneficiaries can have such a vested and indefeasible interest is if the Commissioner exercises the discretion in former subsection 160APHL(14).

Former subsection 160APHL(14) of the ITAA 1936 contains a discretion, whereby in cases where beneficiaries do not have a vested and indefeasible interest in so much of the corpus of the trust as is comprised by the trust holding, the Commissioner may determine that the interest is to be taken to be vested and indefeasible.

The requirements to be satisfied in respect of the discretion are contained in former subsections 160APHL(14)(a), (b) and (c) of the ITAA 1936.

In terms of former paragraph 160APHL(14)(a) -

The taxpayer has an interest in so much of the corpus of the trust as is comprised by the trust holding:

As discussed above, the Holders in the C Trust will have an interest in so much of the corpus of the trust as is comprised by the trust holding.

In terms of former paragraph 160APHL(14)(b) -

Apart from this subsection, the interest would not be a vested or indefeasible interest:

As discussed above, a Holder's interest in the corpus of the trust is not considered as being a vested and indefeasible interest.

In terms of former paragraph 160APHL(14)(c) -

Having regard to the factors prescribed in former paragraph 160APHL(14)(c):

These factors are:

(i) the circumstances in which the interest is capable of not vesting or the defeasance can happen; and

(ii) the likelihood of the interest not vesting or the defeasance happening; and

(iii) the nature of the trust; and

(iv) any other matter the Commissioner thinks relevant.

Holders in the C Trust have a beneficial interest in the income and capital of the trust vested in them by operation of the trust deed. As a result, Holders of the trust have a vested interest of the corpus of the trust.

Circumstances in which defeasance can occur

Holder interests in the trust can be defeased in the following circumstances:

•         the issue of units not in accordance with the savings rule in former subsection 160APHL(13); and

•         the redemption of units not in accordance with the savings rule in former subsection 160APHL(13).

Likelihood of defeasance

The circumstances in which the interests in the Trust can be defeased will not occur during the Ruling Period in accordance with the Proposed Amendments to the C Trust trust deed and Assumptions forming part of this Ruling.

Nature of the Trust

The C Trust is a unit trust with only one Holder. The Holder is a discretionary trust.

Other matters

The discretion in former subsection 160APHL(14) of the ITAA 1936 relates to the utilisation of a tax offset for a share of the franking credit on a franked distribution. It was introduced as a part of integrity measures aimed at defeating franking credit trading schemes.

The Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 2) 1999, which accompanied the introduction of former subsection 160APHL(14), outlined the purpose of those integrity measures:

4.6 One of the underlying principles of the imputation system is that the benefits of imputation should only be available to the true economic owners of shares, and only to the extent that those taxpayers are able to use the franking credits themselves: a degree of wastage of franking credits is an intended feature of the imputation system.

4.7 In substance, the owner of shares is the person who is exposed to the risks of loss and opportunities for gain in respect of the shares. However, franking credit trading schemes allow persons who are not exposed, or have only a small exposure, to the risks and opportunities of share ownership to obtain access to the full value of franking credits, which often, but for the scheme, would not have been used at all, or would not have been fully used. Some of these schemes may operate over extended periods, and typically involve a payment related to the dividend which has the effect of passing its benefit in economic terms to a counterparty. The schemes therefore undermine an underlying principle of imputation.

In exercising the discretion, the Commissioner must ensure that the purpose of the integrity measures is not undermined.

The purpose of the integrity measures will not be undermined due to the Proposed Amendments to the C Trust trust deed and Assumptions forming part of this Ruling.

Conclusion

The Commissioner will exercise the discretion under former subsection 160APHL(14) to treat the Holders as having a vested and indefeasible interest in so much of the corpus of the trust as is comprised by the trust holding during the Ruling Period.

Question 4

Summary

It is considered that neither CGT event A1 (in section 104-10), CGT event E1 (in section 104-55), CGT event E2 (in section 104-60), CGT Event E3 (in section 104-65) or CGT event E5 (in section 104-75) (all of the ITAA 1997)) will occur when the Proposed Amendments to the C Trust are executed.

Detailed reasoning

Legislative Framework

CGT event E1 happens if a taxpayer creates a trust over a CGT asset by declaration or settlement (subsection 104-55(1) of the ITAA 1997).

CGT event E2 happens if a taxpayer transfers a CGT asset to an existing trust (subsection 104-60(1) of the ITAA 1997).

CGT Event E3 happens if a trust (that is not a unit trust) over a CGT asset is converted to a unit trust; and just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under).

CGT Event E5 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee (disregarding any legal disability the beneficiary is under).

CGT event A1 is also relevant in this context. CGT event A1 happens if a taxpayer disposes of a CGT asset (subsection 104-10(1) of the ITAA 1997). A taxpayer disposes of a CGT asset for the purposes of CGT event A1 if there is a change in ownership of the asset from the taxpayer to another entity (subsection 104-10(2) of the ITAA 1997).

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 Federal Commissioner of Taxation 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 Proposed amendments to C Trust

CGT Events E1 and E2

•         The Proposed Amendments will not cause the C Trust to end or give rise to a particular asset of the Trust being settled on terms of a different trust.

•         The Proposed Amendments are within the powers of the trustee to make as contained in the Trust Deed of the C Trust (Clause 35) and will be done in accordance with those powers.

•         After the Proposed Amendments to the C Trust trust deed, the beneficiary (unitholder) of the trust will still be the unitholder of the Trust before the Proposed Amendments.

•         After the Proposed Amendments, the unitholder will have fixed entitlements to a share of the income and capital of the Trust in proportion to their unitholding (being 100%).

Therefore, the continuity of the C Trust will be maintained, and the Proposed Amendments will not cause CGT events E1 or E2 in section 104-55 or section 104-60 to happen.

Other CGT events

CGT event A1

For the same reasons that CGT event E1 and E2 will not happen, the trustee of the C Trust will not dispose of a CGT asset and therefore CGT event A1 has no application.

CGT Event E3

CGT event E3 happens in a trust (that is not a unit trust) over a CGT asset that is converted into a unit trust, and just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under).

As the C Trust is a unit trust and will continue to be a unit trust following the amendments, CGT event E3 has no application.

CGT event E5

CGT event E5 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust as against the trustee despite any legal disability of the beneficiary. This CGT event does not happen if the trust is a unit trust (subsection 104-75(1)).