Private ruling: CGT - events involving trusts and trust interests
Date of advice: 1 May 2026
Published: 6 July 2026
Ruling period: Year ending 30 June 20YY.
Date scheme commenced: Year ending 30 June 20YY.

Ruling: Q1: Does CGT event E1 happen under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) at the time of making the proposed changes to the relevant trust's deed? | A1: No. | Q2: Does CGT event E2 happen under section 104-60 of the ITAA 1997 at the time of making the proposed changes to the relevant trust's deed? | A2: No. | Q3: Does CGT event E3 happen under section 104-65 of the ITAA 1997 at the time of making the proposed changes to the relevant trust's deed? | A3: No.

Relevant facts and circumstances: Group structure Two individuals jointly operate a business across multiple locations. Business operations are conducted by certain trusts (operating trusts) that form part of a group of entities. Each operating trust owns the respective premises and associated business assets. The individuals are the only directors of each trustee company and hold all shares in those companies in equal proportions. The individuals propose to restructure their group in the income year by amending certain trust deeds to change the nature of the respective trust and facilitate the issue of interest holdings (units) in that trust. The amendments proposed to the trusts within the group involve: • Changing a discretionary trust to be a fixed unit trust. • Changing a hybrid discretionary trust to be a fixed unit trust. At the time of each respective trustee validly exercising a power under the original trust deed to execute the proposed amendment to the respective trust deed (the scheme of arrangement): • The trustee of each respective trust will not be making a capital payment to a beneficiary for that beneficiary's interest in that trust. • No beneficiary of each respective trust will be made absolutely entitled to the whole or part of the trust assets. • The trustee of each respective trust is not transferring the whole or part of the trust assets to a beneficiary of that trust in satisfaction of the beneficiary's right, or part of it, to receive ordinary income or statutory income from the trust; or, that beneficiary's interest in the trust capital. • To the extent that a beneficiary of each respective trust has a capital interest in that trust, the arrangement does not involve the beneficiary disposing of their capital interest in that trust to a party other than the trustee. • Each respective trust is currently in existence and holds various identifiable assets, which in some instances includes property. The proposed amendments do not extend the existing trust or create a new trust over assets that are planned, or that the trustee has knowledge of, which are to come into existence at a future point in time and become assets of the trust. Trusts Within the original trust deed for each relevant trust, among other matters, clauses are included to: • Define terms relevant of interpreting the trust deed and identifying the objects of the trust. • Specify the trustee's powers to - Determine the income and capital of the trust. - Resolve to distribute income or capital to the objects of the trust. - Amend, revoke, vary, add to or delete a broad range of articles of the trust deed. - Define any special powers, rights and obligations in respect of the trust. • Express the rights, limitations and obligations of the objects of the trust, including any entitlements to the income and capital of the trust. Within the proposed amendments to each respective trust deed, recitals and clauses include: • Clarification of the trust name and relevant entities under the trust. • The trust continues to hold the settled sum and all accretions to the trust on behalf of the beneficiaries of the trust. • Settlement of the deed of variation results in a variation of the original rules of the trust, with the original governing rules of the trust to be replaced with new governing rules. • Removes the existing discretionary beneficiaries and limits the discretionary beneficiary to a single beneficiary. The trustee may consider only this beneficiary. • The issue of ordinary units at $X each to the intended unit holder, which those units represent a proportionate interest in the trust fund. • For the discretionary trusts, the role of appointor is removed, resulting in the powers previously applied to the appointor being transferred to unitholders of the trust. • That following the proposed amendment, the trust is to be administered as a fixed unit trust.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-25 | Income Tax Assessment Act 1997 subsection 102-25(1) | Income Tax Assessment Act 1997 Division 104 | Income Tax Assessment Act 1997 section 104-55 (CGT event E1) | Income Tax Assessment Act 1997 section 104-60 (CGT event E2) | Income Tax Assessment Act 1997 section 104-65 (CGT event E3) | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 subsection 108-5(1) | Income Tax Assessment Act 1997 subsection 110-25(2) | Income Tax Assessment Act 1997 section 112-20 | Income Tax Assessment Act 1997 section 112-25

Reasons for decision: Detailed Reasoning - Capital gains tax: CGT events involving trusts and trust interests.: Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that capital gains tax (CGT) events (CGT events) happen in certain circumstances, which CGT events that may be relevant to your circumstances are shown in Table 1 . | Detailed Reasoning - Capital loss is: E1 Creating a trust over a CGT asset (section 104-55) when trust is created capital proceeds from creating trust less asset's cost base asset's reduced cost base less capital proceeds E2 Transferring a CGT asset to a trust (section 104-60) when asset transferred capital proceeds from transfer less asset's cost base asset's reduced cost base less capital proceeds E3 Converting a trust to a unit trust (section 104-65) when trust is converted market value of asset at that time less its cost base asset's reduced cost base less that market value E4 Capital payment for trust interest (section 104-70) when trustee makes payment non-assessable part of the payment less cost base of the trust interest no capital loss E5 Beneficiary becoming entitled to a trust asset (section 104-75) when beneficiary becomes absolutely entitled for trustee - market value of CGT asset at that time less its cost base; for beneficiary - that market value less cost base of beneficiary's capital interest for trustee - reduced cost base of CGT asset at that time less that market value; for beneficiary - reduced cost base of beneficiary's capital interest less that market value E6 Disposal to beneficiary to end income right (section 104-80) the time of the disposal for trustee - market value of CGT asset at that time less its cost base; for beneficiary - that market value less cost base of beneficiary's right to income for trustee - reduced cost base of CGT asset at that time less that market value; for beneficiary - reduced cost base of beneficiary's right to income less that market value E7 Disposal to beneficiary to end capital interest (section 104-85) the time of the disposal for trustee - market value of CGT asset at that time less its cost base; for beneficiary - that market value less cost base of beneficiary's capital interest for trustee - reduced cost base of CGT asset at that time less that market value; for beneficiary - reduced cost base of beneficiary's capital interest less that market value E8 Disposal by beneficiary of capital interest (section 104-90) when disposal contract entered into or, if none, when beneficiary ceases to own CGT asset capital proceeds less appropriate proportion of the trust's net assets appropriate proportion of the trust's net assets less capital proceeds E9 Creating a trust over future property (section 104-95) when entity makes agreement market value of the property (as if it existed when agreement made) less incidental costs in making agreement incidental costs in making agreement less market value of the property (as if it existed when agreement made) Section 102-25 of the ITAA 1997 sets out the order of application of CGT events, which subsection 102-25(1) requires that you work out if a CGT event (except CGT events D1 and H2) happens in your situation. If more than one event can happen, the one you use is the one that is the most specific to your situation. However, some exceptions may apply. | Detailed Reasoning - CGT assets: Subsection 108-5(1) of the ITAA 1997 defines that a CGT asset is: (a) any kind of property; or (b) a legal or equitable right that is not property. 'Note 1' to section 108-5 of the ITAA 1997 specifically identifies 'units in a unit trust' as an example of a CGT asset. In relation to the assets of each trust, it is relevant that in Taxation Determination TD 2002/25 Income tax: capital gains: is Australian currency a CGT asset under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) if it is used as legal tender to facilitate a transaction? the Commissioner states that Australian currency is not a CGT asset under section 108-5 of the ITAA 1997 if it is used as legal tender to facilitate a transaction. In these circumstances, Australian currency serves as a medium of exchange and no capital gain or capital loss arises from its use as legal tender. Subdivision 112-A of the ITAA 1997 sets out general modifications to the assets cost base. This includes: • Section 112-20, which deals with circumstance that require the substitution of an assets cost base or reduced cost base with the 'market value' of the asset at the time of acquisition. However, certain exceptions apply, including where the asset is: - A right to receive ordinary income or statutory income from a trust, if you did not pay or give anything for the right; and, you did not acquire the right by way of an assignment from another entity. - A unit in a unit trust or a right to acquire a unit or debenture in a unit trust, if it was issued to you by the trustee of the unit trust and you did not pay or give anything for it. • Section 112-25, which deals with the effect on an asset's cost base and reduced cost base where a CGT asset is split, changed or merged. Subdivision 124-E of the ITAA 1997 provides that a rollover may be available in relation to an exchange of shares or units. | Detailed Reasoning - CGT events: In your circumstances, it is relevant to distinguish between the transfer or disposal of a CGT asset, such as the transfer of units between group entities or the trustee transfers an asset of the trust to a group entity, and the effect of making changes to the trust deed in respect of the underlying CGT assets of the trust. With regard to the proposed scheme of arrangement, at the time of each respective trustee validly exercising a power under the original trust deed to execute the proposed amendment to the respective trust deed: • The trustee of each respective trust will not be making a capital payment to a beneficiary for that beneficiary's interest in that trust. • No beneficiary of each respective trust will be made absolutely entitled to the whole or part of the trust assets. • The trustee of each respective trust is not transferring the whole or part of the trust assets to a beneficiary of that trust in satisfaction of the beneficiary's right, or part of it, to receive ordinary income or statutory income from the trust; or, that beneficiary's interest in the trust capital. • To the extent that a beneficiary of each respective trust has a capital interest in that trust, the arrangement does not involve the beneficiary disposing of their capital interest in that trust to a party other than the trustee. • As each respective trust is currently in existence and holds various identifiable assets, including property, the trustee of each respective trust is not creating a trust over future property. On this basis, the facts of the scheme requires consideration of the effect of amendments made to trust deeds in respect of the continuation of the trust over the underlying CGT assets of that trust, which the following CGT events are most relevant to your circumstances. | Detailed Reasoning - CGT event E1 and E2: Subsection 104-55(1) of the ITAA 1997 provides that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement. However, section 104-55(5) of the ITAA 1997 sets out that a CGT event E1 does not happen if you are the sole beneficiary of the trust and: (a) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and (b) the trust is not a unit trust. Subsection 104-60(1) provides that CGT event E2 happens if you transfer a CGT asset to an existing trust. Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 sets out the Commissioner's view on when a beneficiary will be absolutely entitled to a trust asset as against the trustee. To determine whether a beneficiary is absolutely entitled, TR 2004/D25 states: | Detailed Reasoning - Core principle: 10. The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. This derives from the rule in Saunders v. Vautier applied in the context of the CGT provisions (see Explanation paragraphs 41 to 50). The relevant test of absolute entitlement is not whether the trust is a bare trust (see Explanation paragraphs 33 to 40). | Detailed Reasoning - Rule in Saunders v. Vautier: 11. Under the rule in Saunders v. Vautier , the courts do not regard as effective a direction from the settlor of the trust that purports to delay the beneficiary's full enjoyment of an asset. However, if there is some basis upon which a trustee can legitimately resist the beneficiary's call for an asset, then the beneficiary will not be absolutely entitled as against the trustee to it. ... | Detailed Reasoning - Persons who cannot be absolutely entitled: 13. The following persons cannot be absolutely entitled because they do not have an interest in the trust's assets: • an object of a discretionary trust prior to any exercise of the trustee's discretion in their favour (see Explanation paragraph 71), and • a beneficiary of a deceased estate prior to the completion of its administration (see Explanation paragraph 72). 14. Also, a beneficiary with an interest in the trust's assets cannot be absolutely entitled if that interest is contingent or defeasible (see Explanation paragraphs 73 to 75). ... | Detailed Reasoning - One beneficiary with all the interests in a trust asset: 21. A beneficiary has all the interests in a trust asset if no other beneficiary has an interest in the asset (even if the trust has other beneficiaries). 22. Such a beneficiary will be absolutely entitled to that asset as against the trustee for the purposes of the CGT provisions if the beneficiary can (ignoring any legal disability) terminate the trust in respect of that asset by directing the trustee to transfer the asset to them or to transfer it at their direction (see Explanation paragraphs 76 to 79). However, TR 2004/D25 does not apply to a unit holder in a unit trust in respect of assets of the trust. This is because the scheme of the ITAA 1997 is to treat a unit as the relevant asset for capital gains purposes rather than any asset of the trust, even if the unit holder has an interest in the trust property at general law (see Taxation Determination TD 2000/32). Therefore, the holder of all the units in a unit trust is not subject to the general treatment that applies to those who are absolutely entitled for CGT purposes to the assets of a trust. 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 a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court? the Commissioner expresses the view that in the circumstances where the terms of a trust are changed because of a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court, neither CGT event E1 nor CGT event E2 in sections 104-55 or 104-60 of the 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 explains that: 21. ...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. ... 24. 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. Where an asset is instead transferred to an existing trust, CGT event E2 will be the relevant event - subsection 104-60(1). ... 26. Whether a purported change to a trust in exercise of a power under the deed is properly supported by the power is to be determined in accordance with principles of trust law having regard to the scope of the power properly construed. Relevant to this question will be whether the deed itself explicitly specifies conditions (including procedural conditions) that need to be satisfied for the exercise of the power to be effective. 27. 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. However, as amendments invalidly made have no effect, any such amendments would not of themselves result in CGT events E1 or E2 happening. In your circumstances, with regard to relevant aspects of the scheme: • Each trust is either a discretionary trust or a hybrid discretionary trust and are not a fixed unit trust just prior to the execution of the proposed changes to those trusts. With regard to the principles expressed in TR 2004/D25, no beneficiary has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. On this basis, no beneficiary of any trust is absolutely entitled to the asset as against the trustee. • With regard to TD 2012/21, it is considered that the trustee of each trust is empowered under trust deed to make the proposed amendment. Accordingly, upon executing the changes, the terms of each trust will be changed because of a valid exercise of a power contained within the trust's deed. • The proposed changes do not result in the cessation of the existing trust or the creation of a new trust over the assets, such that there is a continuation of the respective trust over the assets of that trust. • The assets of the trust are not 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. Therefore, it is considered that neither CGT event E1 nor CGT event E2 (sections 104-55 and 104-60 of the ITAA 1997) happens upon making those changes to the respective trust's deed. | Detailed Reasoning - CGT event E3: Subsection 104-65(1) provides that a CGT event E3 happens if: (a) a trust (that is not a unit trust) over a CGT asset is converted to a unit trust; and (b) just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under). In your circumstances, with regard to relevant aspects of the scheme: • The hybrid trusts involve the issue of units to a single entity at the time of settlement. The trust deeds also specify certain classes of discretionary beneficiaries, who may benefit from the respective trust at the discretion of the trustee. • Other trusts are discretionary trusts. • Each trust holds certain CGT assets. • You propose to convert each of these trusts to a unit trust, with all the units of the respective trust initially issued to a single unit holder. • As each trust is either a discretionary trust or a hybrid discretionary trust and are not a fixed unit trust just prior to the execution of the proposed changes to those trusts, with regard to the principles expressed in TR 2004/D25, no beneficiary has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. On this basis, no beneficiary of any trust is absolutely entitled to the asset as against the trustee. • As no beneficiary, under each trust respectively, is absolutely entitled to the asset as against the trustee, the circumstances prescribed by paragraph 104-65(1)(a) of the ITAA 1997 are not satisfied. Therefore, it is considered that CGT event E3 will not happen as a result of the proposed changes to each of the respective trust's deed.

Does Part IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar .