Private ruling: Trust resettlement
Published: December 2012
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2004

Ruling: Q1: Will the variations proposed to the Trust Deed trigger the happening of CGT event E1? | A1: No

Relevant facts and circumstances: Pursuant to clause 3(3)(a)(ii) of the Trust Deed, the Trustee, with the consent of the Appointor, will by resolution or deed declare that the class of persons identified in clauses 3(1)(e) and (h) are no longer to be included as a beneficiary under the Trust Deed.

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 has 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 CGT events. Commissioner has recently released Taxation Determination TD 2012/D4 which was published as a result of a recent court case CoT v Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark's case). Whilst the case of 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/D4 accepts that the principles set out in Clark's case have broader application. TD 2012/D4 asserts that a valid amendment to a trust pursuant to an existing power will not result in termination of the trust and therefore will not result in CGT event E1 happening. Following the direction set out in TD 2012/D4, as the amendments are allowed by the Trust Deed, CGT event E1 will not arise in relation to the changes proposed.

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