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Edited version of private advice
Authorisation Number: 1051960085768
Date of advice: 11 March 2022
Ruling
Subject: CGT - trust
Question
Will the execution of the Proposed Deed of Variation to amend the terms of the Trust cause CGT event E1 or E2 to happen?
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 is a discretionary trust established by a trust deed.
The Trust Deed provides amendment powers to the Trustee.
The Trustee amended the terms of the Trust under a previous Deed of Variation and Appointment.
The Proposed Deed of Variation contains the proposed amendment/s to the terms of the Trust; and the Recital contained details clarifying all the purported amendments in the previous Deed of Variation and Appointment.
The ruling applicant provided a copy of the Trust Deed, the previous Deed of Variation and appointment, and the Proposed Deed of Variation.
Relevant legislative provisions
Income Tax Assessment Act 1997
section 104-55
subsection 104-55(1)
section 104-60
subsection 104-60(1)
Reasons for decision
All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified.
Subsection 104-55(1) provides that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement. Subsection 104-60(1) provides that CGT event E2 happens if you transfer a CGT asset to an existing trust.
A change in the trustee of a trust does not constitute a change in the entity, that is the trustee of the trust - see subsection 960-100(2). This means that CGT event E1 or E2 will not happen merely because of a change in the trustee.
Taxation Determination TD 2012/21 expresses the view (at paragraph 1) that in circumstances where the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, CGT event E1 or E2 will not happen 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 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 the asset has been settled on terms of a different trust.
In this case, the proposed amendment/s contained in the Proposed Deed of Variation, would be considered within the Trustees' powers to amend set out in the Trust Deed.
Therefore, based on the assumption that the amendment/s will constitute a valid exercise of the Trustees' powers to amend under the Trust Deed and applying TD 2012//21, the execution of the Proposed Deed of Variation to amend the terms of the Trust will not cause CGT event E1 or E2 to happen.