Edited version of private advice

Authorisation Number: 1052374554793

Date of advice: 20 March 2025

Ruling

Subject: Capital gains tax

Question 1

The Trust is to be amended in accordance with the proposed Deed of Amendment. Do the proposed amendments cause any CGT event to happen under Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997), for example E1 or E2?

Answer 1

No

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.              The Trust is a unit trust.

2.              The Trust Deed for the Trust includes a power of variation that allows the Trustee to add to, revoke or vary all of the provisions of the Trust Deed.

3.              The Trustee proposes to amend the Trust Deed.

4.              The proposed amendment will be made under the power of variation in the Trust Deed.

5.              No assets are being transferred.

Relevant legislative provisions

Division 104 of the Income Tax Assessment Act 1997

Section 104-55 of the Income Tax Assessment Act 1997

Section 104-60 of the Income Tax Assessment Act 1997

Reasons for decision

The CGT events are set out in Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 104-55(1) of the ITAA 1997 states that 'CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement'. Subsection 104-60(1) states that 'CGT event E2 happens if you transfer a CGT asset to an existing trust'.

Taxation Determination TD 2012/21 Income tax: does CGT event E1 or E2 in section 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? (TD 2012/21) includes the following:

1. No. In the circumstances neither CGT event E1 nor CGT event E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997) happens 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.

21. ..., as a general proposition, it would seem that the approach adopted by the Full Federal Court in Commercial Nominees, as explained by Edmonds and Gordon JJ in Clark, is authority for the proposition that assuming there is some continuity of property and membership of the trust, an amendment to the trust that is made in proper exercise of a power of amendment contained under the deed will not have the result of terminating the trust, irrespective of the extent of the amendments so made so long as the amendments are properly supported by the power...

24. Even though Clark and Commercial Nominees were decided in the context of whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, the ATO accepts the principles set out in these cases have broader application. Relevantly, the principles established by those cases are also relevant to the question of the circumstances in which CGT event E1 or E2 may happen as a result of changes being made to the terms of an existing trust pursuant to exercise of an existing power (including a power to amend). In light of those principles, the ATO accepts that a change in the terms of the trust pursuant to exercise of an existing power (including an amendment to the deed of a trust), or court approved variation, will not result in a termination of the trust and, therefore, subject to the observation in paragraph 27 below, will not result in CGT event E1 happening...

27. Even in instances where a pre-existing trust does not terminate, it may be the case that assets held originally as part of the trust property commence to be held under a separate charter of obligations as a result of a change to the terms of the trust - whether by exercise of a power under the deed (including a power to amend) or court approved variation - such as to lead to the conclusion that those assets are now held on terms of a distinct (that is, different) trust.

In the current circumstances, the proposed amendment will be made in accordance with the power of variation in the Trust Deed. The power of variation allows the Trustee to add to, revoke or vary all of the provisions in the Trust Deed. The proposed Deed of Amendment will be made by the exercise of an existing power of variation in the Trust Deed.

The proposed Deed of Amendment will not affect the continuity of the property and membership of the Trust.

The proposed amendments will not cause the Trust to end or the trust property to be resettled under a new charter of obligations. As such, the proposed amendments will not cause CGT event E1 to happen. Further the proposed amendments do not cause assets to be transferred into or out of the Trust, and CGT event E2 will not happen. No other CGT event will happen in respect of the proposed amendments.