Edited version of private advice

Authorisation Number: 1052387928494

Date of advice: 7 May 2025

Ruling

Subject: CGT - trust deed amendments

Question 1

Will any capital gains tax (CGT) event occur as a result of making the proposed amendments to the Unit Trust Deed?

Answer

No.

As the Unit 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?

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The Trust is a Unit Trust, created by Unit Trust Deed.

It was intended for the Unit Trust to be a Fixed Trust at creation. The Trust Deed did not satisfy the relevant criteria to characterise it as a fixed trust.

The Trustee intends to amend the Unit Trust Deed to satisfy the requirements of the relevant legislation to classify the Unit Trust as a 'Fixed Trust'.

The 'Variation of deed' clause of the Unit Trust Deed provides:

At any time prior to termination of this deed, any provision, condition or term of this deed may be varied by the trustee, except clause X (which cannot be varied) by the following means:

•                     by the execution of a deed of variation; or

•                     by a resolution of the board of directors of the corporate trustee of the trust.

The trustee must amend this deed from time to time to allow for future changes in the law. The variation will take effect on the date of execution of the deed.

A variation of this deed may alter, modify, add to or cancel any (except clause X) or all of the deed's provisions, to whatever degree the trustee sees fit. Such variation may extend to the revocation of all trusts established under this deed. A replacement deed executed by the trustee may reserve this power of variation.

Any variation to this deed is not effective unless all the unit holders have consented in writing in a meeting of unit holders by special resolution where the variation to the deed affects the following issues:

•                     appointment, removal of trustee or appointment of additional trustee

•                     rights of units to income and capital of the trust fund or voting rights of unit holders

•                     issue of new units, redemption, transfer or cancellation of units

•                     any change in liability of unit holders

•                     termination of this trust.

No variation of this deed may create any trust or any power that might operate after the vesting date (i.e. 80 years after the first execution of this deed), except for immediate distributions of the trust fund to persons entitled.

The Schedule of The Deed of Rectification and Amendment details the intended amendments to the Unit Trust Deed:

Redemption of Units

New clauses are inserted in the Trust Deed as follows:

1.            Each individual unit holder has the complete and unfettered power to compel the trustee to redeem all of any of the units held by the unit holder, with such a redemption to be affected at market value. For the avoidance of doubt, any redemption and cancellation of all or some of a unit holder's units is at the absolute discretion of a unit holder, with any other unit holder and trustee not being able to fetter the unit holder's ability to compel a redemption and cancellation of all of some of that unit holder's units.

2.            In giving effect to a redemption and cancellation of any or all of the units, or amount paid up with respect to any units held by a unit holder, a unit holder may compel the trustee to make an in specie distribution of any item of the trust fund.

3.            The unit holders may compel the trustee to vest the trust fund in the unit holders, according to the unit holder's proportion, by causing the vesting date to occur via unit holder's approval.

4.            The proportion of trust capital to which a unit holder is entitled on a winding up or surrender of units is fixed and is the same as the proportion of income of the trust to which the unit holder is entitled.'

Determination of income

The determination of income clause is amended to read as follows:

'The trustee has absolute discretion in determining whether any receipt, gain, payment, profit, loss, outgoing, money or investment in respect of any accounting period shall be treated as income or capital of the trust and whether or not a capital gain arises under the Act or ITAA 1936 or ITAA 1997. Once the allocation is done, the trustee will distribute the income or capital of the trust to the unit holders in accordance with the proportion of units held by a unit holder.'

Present entitlements to the capital and income of the Trust Fund

A new clause is inserted into the Trust Deed as follows:

'Subject only to the trustee's right of indemnity for the proper payment of expenses with respect to the administration of the trust, each unit will entitle the unit holder, jointly with all other unit holders according to the unit holder's proportion, to the trust fund as an entirety.'

New clauses are inserted into the Trust Deed as follows:

5            Notwithstanding anything to the contrary in this deed, the unit holders:

(a)          are presently entitled to the net income of the trust, subject only to the proper payment of expenses by and of the trustee relating to the administration of the trust; and

(b)          are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute trust property or the net proceeds of the trust property

This clause is irrevocable, and cannot be removed, restricted or otherwise affected by the exercise of any discretion, or the failure to exercise a discretion by anyone (including, but not limited to, the Trustee) under the terms of this deed and any other provision of this deed that is inconsistent with this clause 43A does not apply to the extent of such inconsistency.

6            To the maximum extent possible, and subject to the trustee's right of indemnity and exoneration, the unit holders have a beneficial interest in the trust fund. For the avoidance of doubt, subject only to the proper expenses by and of the trustee relating to the administration of the trust, the unit holders at all times have present legal right to demand, and receive payment of the trust fund and any net income of the trust.'

Clause Y of the Unit Trust Deed states:

Any unit holder may request the trustee in a prescribed form to redeem the unit holder's units (in part or all) on a specified redemption date. The trustee has complete discretion over whether or not to redeem units and on which date to redeem the units. Units must be redeemed at the redemption price calculated on the redemption date. The units must be cancelled upon redemption and unit holder register amended to show that the units are redeemed.

Clause Z of the Unit Trust Deed states:

Each unit holder will be presently entitled to their share of income, if any, when that income vests in them. Each unit holder will have an immediate and indefeasible vest interest in that part of the income to which the unit holder is entitled in the financial yea, in who favour the trustee sets aside the income of the financial year or who is entitled to share in the income of the financial year where the trustee determines to accumulate income of the financial year.

The above clauses Y and Z will be deleted and replaced with 'NOT USED'.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 104

Income Tax Assessment Act 1997 subdivision 104-E

Income Tax Assessment Act 1997 section 104-55

Income Tax Assessment Act 1997 section 104-60