Private ruling: CGT - trust resettlement
Date of advice: 22 September 2023
Published: 30 October 2023
Date scheme commenced: 1 July 2023

Ruling: Q1: Does capital gains tax (CGT) event E1 in section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) or E2 in section 104-60 of the ITAA 1997 occur when the Appointer of the trust is changed? | A1: No. | Q2: Does CGT event E1 in section 104-55 of the ITAA 1997 or E2 in section 104-60 of the ITAA 1997 occur when the beneficiaries of the trust are changed? | A2: No. This private ruling applies for the following period: Period ending 30 June 2024 The scheme commenced on: 1 July 2023

Relevant facts and circumstances: The Trust was established in 20XX. The Appointers are individual A and B. The deed sets out primary, secondary and tertiary beneficiaries. It is proposed to amend the Trust Deed as follows: • Remove individual A and B as Appointers • Appoint individual C as Appointer • Add individual C as a primary beneficiary • Leave individual A as a primary beneficiary. Individual A and B will resign as Appointers. Individual C is the child of individual A. The Trust deed considers 'Additional Beneficiaries' and provides powers to appoint new beneficiaries. The Trust deed provides for changes to Appointer of the trust upon the death, resignation or legal incapacity of an Appointer.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 section 104-60

Reasons for decision: Summary: A trust resettlement will occur for income tax purposes where one trust estate had 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 to beneficiaries as a result of various capital gains tax (CGT) event such as CGT event E1 which is triggered when a trust resettlement occurs, that is, when one trust estate has ended and another has replaced it. The Commissioner has released Taxation Determination TD 2012/21 which was published as a result of the court case CoT 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 | Detailed Reasoning - Application to your circumstances: In this case, there are plans to make changes to the appointer and beneficiaries of the Trust. The proposed amendments to the Trust Deed will not cause the Trust to terminate or give rise to a particular asset of the Trust being settled on terms of a different trust. The proposed amendments are considered within the powers of the Trustee as contained in the Trust Deed and therefore, will not cause CGT event E1 or E2 in section 104-55 or section 104-60 of the ITAA 1997 to happen.