Edited version of private advice

Authorisation Number: 1052343052153

Date of advice: 12 December 2024

Ruling

Subject: CGT - trusts

Question 1

Will the proposed amendments to the trust deed cause any capital gains tax (CGT) event?

Answer 1

No.

As the trust deed will be amended through a valid exercise of the trustee's power, the amendments will not cause the existing trust to terminate and a new trust to arise, nor will the variation lead to any particular asset being subject to a separate charter of rights and obligations, no CGT events will occur, including CGT events E1 or E2.

This decision is consistent with Taxation Determination TD 2012/21 Income tax: does CGT event E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 happen if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court?

Taxation determinations are public rulings for the purposes of the Taxation Administration Act 1953. If you rely on the ruling and act in accordance with the ruling, you will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.

Question 2

Will the proposed amendments to the trust deed result in any change to the cost base of the currently issued units?

Answer 2

No.

As the trust will not be resettled, upon exercise of the proposed amendments, there will be no changes to the cost base of the currently issued units.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Company A (The Trustee), Individual B and Individual C (as trustee for Trust D) (the Unit Holders) executed a deed establishing The Unit Trust (the Trust Deed).

The Trustee proposes to amend the Trust Deed for the Unit Trust to meet the definition of a fixed unit trust in the relevant state legislation.

The amendment clause of the Trust Deed provides:

Amendment of trust

The Trustee may with the consent of a resolution in respect of which unit holders holding not less than 75% of the units then issued shall have voted in favour at any time by deed make any amendment or addition to this Deed which it has approved having regard to all the circumstances of the case and provided that any such amendment or addition will not prejudice the interest of unit holders without their written consent and after the execution of any such amending deed this Deed shall take effect as amended.

The trustee will amend the trust deed by:

(a)           Deleting in clause A(a) the words 'The Trustee may determine whether a receipt or gain or outgoing is going to be treated as being on account of capital or Income or partly on account of one and partly on account of the other. If the Trustee does not make a determination under this subclause prior to midnight on 30 June in a financial year, the' and substituting 'The';

(b)           Deleting clause A(c);

(c)           Deleting the first occurrence of the word 'The' in the amendment clause and substituting 'Subject to clause 1, the'; and

(d)           inserting the following:

(1)           This provision applied in priority to all other provisions in this Deed and notwithstanding anything to the contrary:-

(1.1)       all unit holders are presently entitled to income of the Trust, subject only to the payment of proper expenses by and of the Trustee relating to the administration of the Trust;

(1.2)       all unit holders are presently entitled to the capital of the Trust and may require the Trustee to wind up the Trust and distribute the Trust property or the net proceeds of the Trust property;

(1.3)       the entitlements referred to in clauses 1.1 and 1.2 cannot be removed, restricted or otherwise affected by the exercise of any discretion or by a failure to exercise any discretion, conferred on a person by this Deed;

(1.4)       the proportion of Trust capital to which a unit holder is entitled on a winding up or surrender of units is fixed and must be the same as the proportion of income of the Trust to which the unitholder is entitled;

(1.5)       only one class of units may be on issue or issued in the Trust; and

(1.6)       clauses 1.4 and 1.5 cannot be amended.

The amendment deed will be signed by all Unit Holders in accordance with the amendment clause.

The amendments to the trust deed do not affect the assets of the Unit Trust, nor do they cause the Unit Trust to vest or resettle.

No assets are being transferred and the Unit Holders will not change because of the amendments.

The proposed amendments will not affect the cost base of the already issued units of the Trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 104-E

Income Tax Assessment Act 1997 section 104-55

Income Tax Assessment Act 1997 section 104-60