Private ruling: Trust vesting
Date of advice: 21 December 2021
Published: March 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: On vesting of the Trust, does this cause CGT event E1, E5, or E7 in section 104-55, section 104-75, or section 104-85 of the Income Tax Assessment Act 1997 (ITAA 1997) to happen? | A1: No. In this case the vesting of the trust, does not end the trust or create a new trust as the trust deed allows the Trustee to continue to hold the trust property on trust from the vesting date for certain corpus beneficiaries. This does not cause the Trust to terminate or give rise to a particular asset of the Trust being settled on terms of a different trust. Therefore, the vesting of the Trust will not cause CGT event E1, E5 or E7 in section 104-55, section 104-75, or section 104-85 of the ITAA 1997 to happen. | Q2: On vesting of the Trust, does this cause CGT event C2 in section 104-25 of the Income ITAA 1997 to happen? | A2: No. CGT event C2 happens if your ownership of an intangible CGT asset ends, by the asset being cancelled, surrendered, released, discharged, satisfied, or abandoned. The beneficiaries of a discretionary trust merely have the right to be considered and do not have a vested and indefeasible right to the trust property. In this case, at no time were the beneficiaries of the trust absolutely entitled to the trust property prior vesting. Therefore, as the trust property was always owned by the trustee and never by the beneficiaries, and at no time was there a renunciation by a beneficiary of their interest in the discretionary trust, C2 could not happen as there was no loss of ownership rights by any of the corpus beneficiaries

Relevant facts and circumstances: The Trust was established by Trust Deed ('the deed') for the benefit of their children as first corpus beneficiaries. The trust deed has never been varied prior vesting. In the vesting clause, it provides that the trustee has absolute discretion, in which of the beneficiaries, and how much they will each receive on vesting of the trust. In a clause of the Trust deed, it provides the distribution date, where it has been determined by the trust deed that the trust will vest, and the distribution date is XXXX. The vesting clause provides, that the Trust fund is to be held for the benefit of the first, second and third corpus beneficiaries and at the distribution date, the Trustee has absolute discretion to distribute. In the absence of a determination by the Trustee, the default position is that the trust fund is to be held equality amongst the first corpus beneficiaries living at the distribution date. No determination was made by the Trustee at the distribution date and the date passed with no action undertaken by the Trustee. Therefore, as per a clause of the Trust deed, on the vesting date of the trust, the capital and income will be held by the trust for the first corpus beneficiaries. At no time were the beneficiaries of the trust absolutely entitled to the trust property prior vesting and the trust property was always owned by the trustee and never by the beneficiaries. At no time was there a renunciation by a beneficiary of their interest in the discretionary trust

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 section 104-60 | Income Tax Assessment Act 1997 section 104-85