Private ruling: Whether the trust has been resettled
Date of advice: 23 February 2016
Published: April 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 E2 to happen? | A1: No.

Relevant facts and circumstances: The trust is a discretionary trust. The trustee wishes to make amendments. The trust deed gives the trustee the power to make the proposed amendments.

Relevant legislative provisions: Section 104-55 of the Income Tax Assessment Act 1997 | Section 104-60 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 as a result of various CGT events. The Commissioner has released Taxation Determination TD 2012/21 which was published as a result of the court case Commissioner of Taxation 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 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 either CGT event E1 or E2 happening. Following the direction set out in TD 2012/21, as the Trust Deed allows for the Trustee to amend the deed, neither CGT event E1 or E2 arises in relation to the changes proposed. Accordingly, there is no tax liable as a result of the change to the trust deed, that is, the trust has not been resettled.