Private ruling: Trust resettlement
Date of advice: 10 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Does CGT event E1 in section 104-55 of the Income Tax Assessment Act 1997 happen if the Trustee and Principal of the Trust execute the Deed of Appointment and Amendment? | A1: No | Q2: Does CGT event E2 in section 104-60 of the Income Tax Assessment Act 1997 happen if the Trustee and Principal of the Trust execute the Deed of Appointment and Amendment? | A2: No

Relevant facts and circumstances: The Trust is a family discretionary trust. The objects or potential beneficiaries of the Trust include those persons or entities named in the Schedule to the Trust Deed. In addition, the objects of the Trust also include, broadly, relatives of the named individual potential beneficiaries and other entities in which a potential beneficiary holds an interest. Clause A of the Trust Deed provides that the “Principal” (the appointer of the Trust) has the power to appoint and remove the Trustee of the Trust. Clause B of the Trust Deed provides: Any Trustee may by deed or resolution at any time revoke, add to, release, delete or vary all or any of the trusts or powers declared in this Deed… provided that the variation does not purport to remove or replace the Principal or to add another person or persons as Principal without the consent in writing of the Principal first being obtained. Clause C of the Trust Deed provides that the Trustee may at any time and from time to time declare by instrument in writing or resolution that any person or class of persons shall be excluded as Beneficiaries for the purpose of this Deed. The Trustees and the Principal will execute a Deed of Appointment and Amendment which will remove and exclude a potential beneficiary of the Trust. In addition, the Deed of Appointment and Amendment also effects the retirement of the Principal and the appointment of a new Principal. Clause D of the Deed of Appointment and Amendment provides: By executing this Deed the Principal consents to the amendments to the Trust Deed made by this Deed. Clause E of the Deed of Appointment and Amendment provides: With effect from the date of this Deed immediately after the amendment to the Trust Deed takes effect, the Principal retires as Principal and appoints Person X as Principal in its place.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-55 | Income Tax Assessment Act 1997 Section 104-60

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 to beneficiaries as a result of various CGT events. The decision in Clark's case is relevant to the question of the circumstances in which, as a result of changes being made to an existing trust, a new trust comes into existence, triggering CGT event E1 or an asset is transferred into an existing trust triggering E2. Taxation Determination TD 2012/21: Income tax: does CGT even 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 power contained within the trust's constituent document, or varied with the approval of a relevant court? 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 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 in section 104-55 or CGT event E2 in section 104-60 of the Income Tax Assessment Act 1997 .