Private ruling: Trust Resettlement
Date of advice: 16 November 2015
Published: January 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Do the proposed amendments of the Trust Deed cause either CGT event E1 or CGT event E2 to happen? | A1: No.

Relevant facts and circumstances: The trust is a discretionary trust. Clause X of the Trust Deed enables the trustee with the consent of the Guardian to 'revoke add to or vary all or any of the trusts hereinbefore contained.' The Trustee proposes to exercise its powers to: (i) nominate the trustee of the Trust X and the company as income beneficiaries of the Trust; and (ii) amend the terms of the Trust to achieve the following: (a) removing the distinction between income and corpus beneficiaries; (b) providing for distributions after the death of A to Trust X (c) providing for capital distributions to the company; (d) introducing provisions concerning the identification and streaming of income; and (e) amend the guardians and appointors to include A's relatives and further lineal descendants on their death and to resolve deadlocks with the appointment of an Independent Appointer.

Relevant legislative provisions: Section 104-55 of the Income Tax Assessment Act 1997

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. The Commissioner has released Taxation Determination TD 2012/21 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 2012/21 accepts that the principles set out in Clark's case have broader application. TD 2012/21 explains that 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. TD 2012/21 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 a CGT event happening. Following the direction set out in TD 2012/21, as the Trust Deed allows for the Trustee to amend the deed, CGT event E1 or E2 does not arise in relation to the changes proposed. Accordingly, there is no tax liable as a result of the change to the trust deed.