Private ruling: Capital gains tax (CGT) events and variations of terms of trust
Published: November 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: During the year ending 30 June 2014

Ruling: Q1: Will there be a CGT event under section 104-55 or 105-60 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to any property of the Family Trust if the Trustee as trustee for the Family Trust enters into a Deed of Amendment by which the Trustee amends the terms of the deed governing the Trust? | A1: No.

Relevant facts and circumstances: The Family Trust was established by a deed of settlement (Trust Deed) between the Settlor and the Trustee. The Trustee proposes to make amendments to the terms of the Trust Deed as set out in the proposed Deed of Amendment. The Trustee proposes to make the amendments to the Trust Deed pursuant to the existing powers of amendments in the Trust Deed. The Trust Deed also requires that the Trustee may not exercise any of the powers in the Trust Deed to carry out the above amendments without first giving to the Guardian prior notice in writing of its intention to do so unless the Guardian gives his consent in writing to the Trustee that such notice is not required. The Guardian intends to waive the requirement for prior notice by signing the proposed Deed of Amendment. The Trustee has also provided confirmation that the proposed changes in the proposed Deed of Amendments shall not deprive any beneficiaries of any part of the Trust Fund or any income to which the beneficiaries have become entitled, nor shall it affect the beneficial entitlement to any amount set aside for any beneficiary prior to the date of the variation, and shall not be in favour of or result in any benefit to any member of the excluded class as required by the Trust Deed.

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

Reasons for decision: Summary: When a variation is made to the terms of a trust deed CGT event E1 under section 104-55 of the ITAA 1997 or CGT event E2 under section 104-60 of the ITAA 1997 may happen. CGT event E1 happens when a trust over a CGT asset is created by declaration or settlement. CGT event E2 happens if a CGT asset is transferred to an existing trust. The effect of a change to the terms of an existing trust might lead to a termination of the trust. Even where the trust does not terminate in some circumstances it may be concluded that a new trust has been created over a particular trust property to which the change relates. 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? states that CGT event E1 and CGT event E2 will not generally happen if the terms of a trust are changed pursuant to a valid exercise of a power contained in the trust's constituent document, or are varied with a court's approval. However, a CGT event will occur if the change: · causes the existing trust to terminate and a new trust to arise for trust law purposes; or · results in 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 Trust Deed gives the Trustee the powers to make changes to the Trust's terms and conditions subject to requirements that the Trustee gives the Guardian prior notice of the Trustee's intention to amend and that such changes shall not deprive any beneficiaries of any part of the Trust Fund or any income to which the beneficiaries have become entitled, nor shall they affect the beneficial entitlement to any amount set aside for any beneficiary prior to the date of the variation, and shall not be in favour of or result in any benefit to any member of the excluded class. The Guardian intends to waive the requirement for the Trustee to give prior notice. The ATO has also received confirmation that the amendments do not deprive any beneficiaries of any part of the Trust Fund or any income to which the beneficiaries have become entitled, nor shall they affect the beneficial entitlement to any amount set aside for any beneficiary prior to the date of the amendments and shall not result in any benefit to any member of the excluded class. The proposed amendments to the Trust Deed as set out above are done pursuant to the exercise of the Trustee's existing powers of amendments in the Trust Deed and will not result in CGT event E1 or E2 happening nor any other CGT event.