Private ruling: Trust resettlement
Published: December 2013
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the proposed amendments to the Trust deed cause a resettlement of the Trust for capital gains tax (CGT) purposes? | A1: 

Relevant facts and circumstances: Due to a relationship breakdown, individual A wishes to remove individual B from the position of appointer of the Trust in the event of individual A's death, and provide a mechanism by which he/she can appoint someone else in his/her stead. Currently, the deed makes no provision for the succession of an appointer, other than individual B, on individual A's death. In order to rectify this problem, the following variations are proposed: · A Deed to be entered into between individual A, as the current appointer, the Trustee, the primary beneficiaries, and individual B, wherein individual B will renounce any position as appointer on individual A's death. · A further Deed amending the current deed to provide for the inclusion of the usual appointer succession clause allowing the appointer to appoint someone else in writing or by will or via a legal personal representative. The Trust Deed provides the trustee with the power to make the proposed changes.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section104-55

Reasons for decision: Summary: CGT event E1 is triggered when a trust resettlement occurs, that is, when one trust estate has ended and another has replaced it. Tax Determination TD 2012/21 sets out the Commissioner's view in respect to trust resettlements and whether or not a resettlement has occurred. TD 2012/21 asserts that a valid amendment to a trust will not result in the termination of a trust as long as: · the amendment is made pursuant to an existing power; · the amendment does not cause the trust to terminate for trust law purposes; and · the effect of the amendment does not 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. In your case, the proposed variations to the existing Trust deed would be a valid amendment to the trust, not resulting in a termination of the trust, and will not result in the happening of CGT event E1.