Private ruling: Will the E1 or CGT event E2 happen as a result of the proposed amendment?
Date of advice: 13 June 2017
Published: October 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the proposed amendment to the Trust Deed cause a resettlement of the trust so that CGT event E1, E2 or any other CGT event will happen? | A1: No.

Relevant facts and circumstances: The trust is a discretionary trust. The trustee wishes to add a beneficiary. The trust deed gives the trustee the power to amend the trust deed.

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

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 Commissioner has released Taxation Determination TD 2012/21 which was published as a result of the court case CoT v. Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark’s case). Whilst Clark’s case dealt with whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, TD 2012/21 accepts that the principles set out in Clark’s case have broader application. TD 2012/21 states that a valid amendment to a trust pursuant to an existing power will not result in CGT event E1 or CGT event E2 happening 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. The Trust Deed allows for the Trustee to amend the deed and in this case it is accepted that neither of the two exclusions mentioned above will apply as a result of the proposed amendment. Consequently, neither CGT event E1 nor CGT event E2 will arise in relation to the change proposed. It is also considered no other CGT event will occur as a result of the proposed amendment.