Private ruling: Income tax - CGT and trusts
Date of advice: 14 July 2025
Published: 15 September 2025
Ruling period: Income year ending 30 June 2026

Ruling: Q1: Will the proposed amendments to the trust deed of the Trust cause CGT event E1 in section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) or CGT event E2 in section 104-60 of the ITAA 1997 to happen? | A1: No

Relevant facts and circumstances: The Trust 1. The Trust is an Australian resident discretionary trust, established by the Trust Deed dated XX XX XXXX between the settlor and the Trustee. 2. 'Beneficiary' is defined in clause 1 of the Trust Deed to mean both Income and Capital Beneficiaries. 3. Clause 1 of the Trust Deed defines 'Income Beneficiary' to mean and include the Income Beneficiary or Beneficiaries referred to in the Schedule to the Trust Deed. The Schedule to the Trust Deed identifies the Income Beneficiaries to be: (a) G; (b) any child or grandchild of G; (c) the lawfully wedded wife or the widow of G (until such time as she remarries), i.e. H; (d) any sister of G or any child of such sister; (e) M; and (f) any child or grandchild of M. 4. Clause 1 of the Trust Deed defines 'Capital Beneficiary' to mean and include the Capital Beneficiary or Beneficiaries referred to in the Schedule to the Trust Deed. The Schedule to the Trust Deed identifies the Capital Beneficiaries to be: #160;(a) a child or grandchild of G; (b) M; (c) a child or grandchild of M; and (d) a child of a sister of G. Vesting Day 5. 'Vesting Day' is defined in clause 1 of the Trust Deed to mean: ... 30 th June 2040 or the day upon which shall expire the period of twenty-one (21) years from the date of death of the last survivor of the descendants now living of his late Majesty King George V (whichever be the earlier) or such other date as is appointed by the trustee as the Vesting Day pursuant to Clause 5 hereof. 6. Pursuant to clause 5 of the Trust Deed, the Trustee may notify the Appointer of its intention to appoint an earlier Vesting Day. 7. The Trustee has not served any notice pursuant to clause 5 of the Trust Deed to appoint an earlier Vesting Day, such that the Vesting Day is effectively 30 June 2040. Appointment of the income and capital of the trust fund 8. The distribution of the annual income of the trust fund and the capital of the trust fund on the Vesting Day is governed by clauses 2(i) to (iv) of the Trust Deed. In summary, these clauses provide that: (a) The Trustee may, at its absolute discretion, distribute the income of the trust fund arising in each accounting period until the Vesting Day among one or more of the Income Beneficiaries (and if more than one, in such shares) as it may determine, with any undistributed income of the trust fund being held in trust for all of the Income Beneficiaries then living in equal shares. (b) From and after the Vesting Day the Trustee is to hold the remaining capital and income of the trust fund on trust for one or more of the Capital Beneficiaries then living (and if more than one, in such shares) as the Trustee may appoint before the Vesting Day, and in default of any such appointment on trust for all the Capital Beneficiaries then living in equal shares. Power to amend the Trust Deed 9. Clause 21 of the Trust Deed gives the Trustee the power to amend the Trust Deed. Following the execution of the Deed of Alteration of Deed (discussed below), it reads as follows: The trustee shall have power by Deed or oral resolution to alter revoke or add to any of the provisions in this Trust Deed and make new provisions to the exclusion of or in addition to any of the provisions at the time being in force and any such alteration revocation or addition to the provisions of this Trust Deed shall be subject inlike manner to be altered revoked or added to by a subsequent Deed or oral resolution PROVIDED THAT no such alteration revocation or addition shall result in the assets comprised in the Trust or the income thereof being payable to the Settlor or the Trustee AND PROVIDED FURTHER THAT no such alteration revocation or addition shall have the effect of divesting or modifying in any way whatsoever the interest of any Beneficiary in the income of the Trust Fund or investments representing such income to which such Beneficiary has become absolutely entitled AND PROVIDED FURTHER THAT no such alteration revocation or addition shall be such as to extend the distribution date as hereinbefore defined beyond the latest date mentioned in such definition. And provided finally that no such alteration revocation or addition shall take effect without the Trustee obtaining the prior written consent of the Appointer to such alteration, revocation or addition. 10. The Trust Deed (at clause 23) contains a power to appoint and remove the Trustee, but does not contain a power to appoint and remove the Appointer. 11. The original Appointer, as identified in the Schedule to the Trust Deed, was G. Changes in the Trust 12. Pursuant to clause 21 of the Trust Deed, amendments to the Trust Deed were affected by Deed of Alteration of Deed executed on XX XX XXXX. 13. The effect of the amendments was to replace G (as the sole Appointer) with 3 different Appointers who must act jointly in their decision making, as well as to ensure that any future amendment to the Trust Deed is subject to the Appointer's prior written consent. Proposed Amendments 14. The Trustee wishes to vary the terms of the Trust Deed further (with written consent of the Appointers). 15. The Deed of Amendment contains amendments to the Trust Deed (Proposed Amendments), including: (a) Replacing the list of Income Beneficiaries referred to in the Schedule with: " INCOME BENEFICIARIES : G; any child of G; any grandchild of G; and the spouse, widower, or widow of any one or more of the aforementioned persons. " (b) Replacing the list of Capital Beneficiaries referred to in the Schedule with: " CAPITAL BENEFICIARIES : G; H; a child of G and H; a grandchild of G and H. " (c) Amending the manner by which the Trustee can exercise its discretion as to the distribution of income and capital with particular reference to default beneficiaries; and (d) Inserting the new clause X to provide additional guidance as to the appointment and role of the Appointer.

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: Detailed Reasoning - Question: Will the Proposed Amendments to the Trust Deed cause CGT event E1 in section 104-55 or CGT event E2 in section 104-60 to happen? | Summary: No. The Proposed Amendments to the Trust Deed would be amendments pursuant to a valid exercise of a power under clause 21 of the Trust Deed and will not cause a termination of the Trust or resettlement of the Trust property. Therefore, CGT event E1 under section 104-55 and CGT event E2 in section 104-60 will not happen. | Detailed Reasoning - CGT event E1: A trust resettlement is a trust law concept and occurs 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. Under subsection 104-55(1), CGT event E1 happens if a trust is created over a CGT asset by declaration or settlement. When a trust deed is varied or amended, there is a risk that this may cause a resettlement of the trust and potentially giving rise to CGT event E1. However, taxation legislation does not contain a test for determining when a resettlement has occurred. As a result, we must look to the established cases. Commercial Nominees The High Court of Australia (HCA) in Federal Commissioner of Taxation v. Commercial Nominees of Australia Ltd [2001] HCA 33; (2001) 75 ALJR 1172; ATR 220; ATC 4336 ( Commercial Nominees ) considered whether a superannuation fund was entitled to utilise prior year losses following amendments to its trust deed (including the appointment of a new trustee, the fund adopting a new set of rules and a change in the nature of benefits from defined to accumulations). The HCA addressed the issue of whether the changes to the deed resulted in a resettlement of the trust. The HCA confirmed that the question is one of continuity and that [at paragraph 36]: ...The three main indicia of continuity [for the purposes of the former taxing regime for superannuation funds] are the constitution of the trusts under which the fund (if a trust fund) operated, the trust property, and membership. Changes in one or more of those matters must be such as to terminate the existence of the eligible entity, or to produce the result that it does not derive the income in question, to destroy the necessary continuity. | Detailed Reasoning - (Emphasis added): The HCA held that resettlement did not arise because: Clark The HCA's decision in Commercial Nominees was followed in Commissioner of Taxation v. David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 ( Clark ). Clark considered whether a unit trust was able to utilise carry forward capital losses where the trust deed had undergone significant changes between incurring those losses and seeking to apply them. Edmonds and Gordon JJ in the Full Federal Court held that there was continuity and no resettlement of the trust. Their Honours were of the view [at paragraphs 78 and 79] that the HCA in Commercial Nominees had endorsed the Full Federal Court's reasoning in Commercial Nominees (1999) 167 ALR 147 that so long as any amendments to the trust obligations is made in accordance with a power conferred by the trust instrument creating the obligations, and continuity of the property that is the subject of the trust obligations is established, then there will be identity of the taxpayer notwithstanding any amendment of the trust obligation and any change in the property itself. Their Honours concluded [at paragraph 87] that: ...When the High Court in Commercial Nominees spoke about trust property and membership as providing two of the indicia for the continued existence of the... trust estate, the Court was not suggesting that there had to be a strict or even partial identity of property for the first and objects for the second. It was speaking more generally: that there had to be a continuum of property and membership, which could be identified at any time, even if different from time to time; and without severance of one or both leading to the termination of the trust in question... TD 2012/21 The ATO's approach to this matter is set out in 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 power contained within the trust's constituent document, or varied with the approval of a relevant court? (TD 2012/21). Paragraph 21 of TD 2012/21 explains that: ....as a general proposition, it would seem that the approach adopted by the Full Federal Court i n Commercial Nominees , as explained by Edmonds and Gordon JJ in Clark , is authority for the proposition that assuming there is some continuity of property and membership of the trust, an amendment to the trust that is made in proper exercise of a power of amendment contained under the deed will not have the result of terminating the trust, irrespective of the extent of the amendments so made so long as the amendments are properly supported by the power ... | Detailed Reasoning - (Emphasis added): Further, paragraph 24 of TD 2012/21 provides that: Even though Clark and Commercial Nominees were decided in the context of whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, the ATO accepts the principles set out in these cases have broader application. Relevantly, the principles established by those cases are also relevant to the question of the circumstances in which CGT event E1 or E2 may happen as a result of changes being made to the terms of an existing trust pursuant to a valid exercise of a power in the deed (including a power to amend). In light of those principles, the ATO accepts that a change in the terms of the trust pursuant to exercise of an existing power (including an amendment to the deed of a trust), or court approved variation, will not result in a termination of the trust and, therefore, subject to the observation in paragraph 27 below, will not result in CGT event E1 happening. | Detailed Reasoning - (Emphasis added): Paragraph 27 of TD 2012/21 cautions that: Even in instances where a pre-existing trust does not terminate, it may be the case that assets held originally as part of the trust property commence to be held under a separate charter of obligations as a result of a change to the terms of the trust - whether by exercise of a power under the deed (including a power to amend) or court approved variation - such as to lead to the conclusion that those assets are now held on terms of a distinct (that is, different) trust. Application to your circumstances The underlying principles encapsulated in paragraphs 21 and 24 of TD 2012/21 provide that, assuming there is some continuity of property and membership of a trust, an amendment to the trust that is made in a proper exercise of a power of amendment contained under the trust deed, or a court approved variation, will not result in a termination of the trust. The Proposed Amendments do not materially alter the constitution or deed of the Trust under which it operates. The changes proposed are essentially limited to: The Proposed Amendments do not involve any change to the Trust property and (in some regard) are comparable to the situation in Example 1 of TD 2012/21 which involved the removal of a particular beneficiary under the trust by way of trustee resolution that was held to be a valid exercise of power of amendment contained within the deed, and did not give rise to the happening of a CGT event. The Proposed Amendments are considered to fall within the scope of the Trustee's power of amendment provided for in clause 21 of the Trust Deed. The execution of the Deed of Amendment with the consent of the Appointers to amend the Trust Deed would constitute a valid exercise of power of amendment. As the Proposed Amendments are within the Trustee's powers contained in the Trust Deed, the Commissioner considers that - following the execution of the Deed of Amendment to amend the Trust Deed to effect the proposed changes - there will be continuity: On this basis, the Proposed Amendments would not result in a termination of the Trust. This is consistent with the decisions in both the Commercial Nominees and Clark cases. Having regard to paragraph 27 of TD 2012/21, the Commissioner is also satisfied that the Proposed Amendments would not result in an asset of the Trust being subject to a separate charter of rights and obligations such as to give rise to the conclusion that an asset of the Trust would be settled on the terms of a different trust. Therefore, the Proposed Amendments to the Trust Deed would not result in a termination of the Trust or resettlement of the Trust property such as to give rise to CGT event E1 under section 104-55. | Detailed Reasoning - CGT event E2: Under subsection 104-60(1), CGT event E2 happens if you transfer a CGT asset to an existing trust. Paragraph 1 of TD 2012/21 provides that neither CGT event E1 nor CGT event E2 happens if the terms of a trust are changed pursuant to a valid exercise of power contained within the trust's constituent documents or varied with the approval of the court unless: As concluded: Therefore, the Proposed Amendments will not cause CGT event E2 under section 104-60 to happen.

the trusts under which the fund operated were constituted by the original trust deed as varied; | the amendments were authorised by the trust deed; | the trust property and the fund members did not change; and | the fund before and after the amendment was administered as a single fund. | amending the list of Income Beneficiaries so as to streamline it to merely include G, his lineal descendants and the spouses, widow or widowers of those persons; | amending the list of Capital Beneficiaries so as to streamline it to merely include G, H and their lineal descendants; | ensuring that where the Trustee fails to exercise its powers of appointment over all of the income and capital of the trust fund, it holds the undistributed income at the end of each accounting period and the undistributed capital on the Vesting Day on trust for the default beneficiaries in the order listed (that is, firstly, for G and H if living at the time (and if both, in equal shares); secondly, for their children if living at the time (and if more than one, in equal shares); and thirdly, for their grandchildren if living at the time (and if more than one, in equal shares)); and | inserting a new clause relating to the appointment of and role of the Appointor(s), primarily aimed at enabling an individual or company to be an additional or replacement appointer at any time. | in the membership of the Trust , apart from the removal of the particular Income and Capital Beneficiaries of the Trust; and | in the operation of the Trust. | 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. | the Proposed Amendments to the Trust Deed in accordance with the Deed of Amendment pursuant to a valid exercise of a power under clause 21 of the Trust Deed will not cause a termination of the Trust or resettlement of the Trust property; and | the Commissioner is satisfied that the Proposed Amendments would not result in an asset of the Trust being subject to a separate charter of rights and obligations such as to give rise to the conclusion that an asset of the Trust would be settled on the terms of a different trust.