Private ruling: Trust-resettlement
Date of advice: 28 April 2026
Published: 20 July 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will a capital gains tax (CGT) event E1 as described in section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) or E2 as described in section 104-60 of the ITAA 1997 occur as a result of the proposed changes to the Trust deed? | A1: No

Relevant facts and circumstances: The Trust (the Trust) was established by deed over 10 years ago. The Trust Deed was settled by an uninterested and independent party. Individual A is named as the appointer to the Trust in the Trust Deed. Individual B is named as the second appointer to the Trust in the Trust Deed. A company (the Company) registered in X state is named in the Trust Deed as the trustee (the Trustee) of the Trust. Individual A is the sole director and secretary of the Company. The schedule to the Trust Deed names the primary beneficiaries of the X Trust as Individual A, Individual B, Individual C, and Individual D: Individual B wants to separate their ties with the Trust. The Trustee is proposing to amend the Deed of the Trust so as to permanently exclude Individual B as a beneficiary and remove Individual B as the second named appointed of the Trust. Individual B intends to resign from this nomination. Under the terms of the Deed of the Trust the trustee with the consent of the appointer may delete a beneficiary with written consent of the appointer and the declared determination of the beneficiary to be excluded as a beneficiary of the trust. The Deed of the Trust also vests power in the trustee, with written consent of the appointer, to alter, vary, or revoke any trust or provision in the deed, and appoint and resettle the trust fund or any part of the fund, and the income arising from the fund or part of the fund. Under the terms of the deed this power cannot be used to modify or divert an interest to which the beneficiary has already become entitled under the deed, or offend the rule against perpetuities. Under the terms of the Deed the settlor may not benefit from any alteration to the Deed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 subsection 104-55(1) | Income Tax Assessment Act 1997 section 104-60 | Income Tax Assessment Act 1997 subsection 104-60(1)

Reasons for decision: Summary: A trust resettlement will occur for income tax purposes where one trust estate has ended and another has been created or replaced it. The effect of such a resettlement is that a disposal of the trust assets is deemed to occur. As a consequence, capital gains may accrue as a result of CGT events E1 or E2 occurring. Subsection 104-55(1) of the ITAA 1997 provides that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement. Subsection 104-60(1) of the ITAA 1997 provides that CGT event E2 happens if you transfer a CGT asset by declaration or settlement. Guidance on whether an amendment to an existing trust may lead to the creation of a new trust can be found in case law. In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980], Hope JA analysed the 'very nature of a trust' in terms of a personal obligation of a trustee annexed to property to hold the property for the benefit of another. In order to 'create' a trust, there must be a creation of both elements of a trust; that is, a creation of personal obligations and a creation of rights annexed to property. A trust is created by settlement when property is vested in a trustee for the benefit of others ( Taras Nominees Pty Ltd v.FC of T (2015) 228 FCR 418 at [5]; Kalantaris at [31]). A transfer of existing trust property to, and the vesting of this property in, a new trustee for the benefit of others may satisfy the description of the creation of a trust by settlement. In the Full Federal Court case of Commissioner of Taxation v Clark [2011] FCAFC 5 ( Clark ), it was established that a trust will not be terminated provided that any amendment to the trust is made in accordance with a power conferred by the Deed and there is some continuity of property and membership of the trust. Following Clark, the Commissioner issued 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 the trust are changed pursuant to a valid exercise of a power contained within the trust's constituent documents, or varied with the approval of a relevant court? (TD 2012/21). In TD 2012/21, the Commissioner accepts that 'continuity of a trust is a function of whether the trust continues in existence under trust law in contradistinction to having terminated'. The determination states that CGT event E1 and CGT event E2 will not generally happen if the terms of a trust are changed pursuant to a valid exercise of a power contained in the trust's constituent document or are varied with a court's approval. However, a CGT event will occur if the change: • causes the existing trust to terminate and a new trust to arise for trust law purposes; or • results in a particular asset being subject to a separate charter of rights and obligations such as to give rise to the conclusion that asset has been settled on the terms of a different trust. | Detailed Reasoning - Application to your circumstances: This ruling is provided on the basis that the Trustee has the power to amend the Trust Deed in the manner proposed and that any necessary court approval will be obtained. Under the current Trust Deed, the Trustee is granted broad powers to revoke, alter, or vary all or any provisions of the Deed at any time. These powers are subject to express limitations, including that amendments must not affect the absolute interests of beneficiaries, contravene the rule against perpetuities, or confer benefits on excluded persons. The proposed amendments are within the scope of the Trustee's amendment powers and do not breach any of the stated limitations. The amendments will not result in the termination of the existing trust, the creation of a new trust, or the establishment of a separate charter of rights and obligations in respect of any trust asset. The rights and obligations attaching to the trust property, as well as the membership of the trust, will remain substantially unchanged, and no transfer of trust assets will occur. The settlor of the trust will not benefit from these amendments. Accordingly, continuity of the trust will be maintained, and neither a CGT event E1 nor a CGT event E2, as described in subsections 104-55(1) or 104-60(1) of the Income Tax Assessment Act 1997 , will occur.