Private ruling: CGT - trust deed amendment
Date of advice: 23 July 2025
Published: 22 September 2025
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY

Ruling: Q1: Will capital gains tax (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 occur when the Deed of Amendment is executed? | A1: No. | Q2: Will CGT event E1 in section 104-55 of the ITAA 1997 or CGT event E2 in section 104-60 of the ITAA 1997 occur when a new trustee is appointed pursuant to the terms of the amended Trust Deed? | A2: No.

Relevant facts and circumstances: The Discretionary Trust Deed Establishing the xx Trust (Trust Deed) was executed on xx xx xx. The Trust Deed relevantly provides pursuant to: • Clause xx: The trustee may vary this deed at any time before the vesting day, even to the extent of revoking all the trust it establishes. The trustee must do so by executing another deed. That deed may reserve this power of variation. • Clause xx The trustee may not vary this deed in a way that causes any part of the trust fund to vest after the vesting day. • Clause xx the trustee may not vary clauses xx or xx. • Clause xx A variation takes effect on the date specifies in the deed. If no date is specified, it takes effect on the date of the deed. The draft Deed of Amendment to add the Office of Appointer was provided by the applicant xx Assumptions The terms of the Trust Deed are amended (amended Trust Deed) pursuant to a valid exercise of a power contained in the Trust's constituent documents.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 104 | 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) | Income Tax Assessment Act 1997 section 104-65

Reasons for decision: Summary: In these circumstances, it is reasonable to conclude the Trust will continue as one trust. The proposed variations do not affect the continuity of property and membership of the Trust - the assets of the Trust will continue to be held for the benefit of the Trust's beneficiaries, The Commissioner considers there will be continuity of the Trust property, membership of the Trust and operation of the Trust. The amendments to the Trust Deed, the appointment of an Appointer and changes to the trustees will not lead to the conclusion that any asset of the Trust will be settled on the terms of a different Trust. In accordance with the assumptions, that the amendments to the terms of the Trust are made in proper exercise of a power of amendment and are properly supported by that power, consistent with the Commissioner's views in TD 2012/21, CGT events E1 or E2 will not apply to the proposed amendments to the Trust Deed. Nor will they apply to the appointment of an Appointor or new trustee in accordance with the amended Trust Deed. | Detailed Reasoning - Detailed reasoning: 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 tax could accrue to the trustee and beneficiaries as a result of various CGT events. The CGT events that may happen are set out in Division 104 of Part 3.1 of the ITAA 1997. Subsection 104-55(1) of the ITAA 1997 provides that CGT event E1 happens if a taxpayer creates a trust over a CGT asset by declaration or settlement. Subsection 104-60(1) of the ITAA 1997 provides that CGT event E2 happens when a taxpayer transfers a CGT asset to an existing trust. In the Full Federal Court case of Commissioner of Taxation v Clark [2011] FCAFC 5 (Clark), it was established that a trust will not be terminated provided that any amendment to the trust is made in accordance with a power conferred by the trust instrument and there is some continuity of property and membership of the trust. Following Clark, the Commissioner issued 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? (TD 2012/21). In TD 2012/12 the Commissioner expresses the view that in circumstances where 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, neither CGT event E1 nor CGT event E2 of 104-55 or 104-60 of the ITAA 1997 will happen unless: • the change causes the existing trust to terminate and a new trust arise for trust law purposes, or • the effect of the change 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 paragraph 1). For CGT event E1 to occur, it is required that there be both the creation of a trust and that this be done by way of declaration or settlement. The phrase "you create a trust over a CGT asset" is to be understood by reference to the general law of trusts. In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 518-519. Hope JA analysed the 'very nature of a trust' in terms of a personal obligation of a trustee annexed to property to hold the property for the benefit of another. In order to 'create' a trust, there must be a creation of both elements of a trust; that is, a creation of personal obligations and a creation of rights annexed to property. Notwithstanding that an existing trust estate may not have come to an end and the entirety of the trust fund settled on terms of a new trust, it is possible for assets to be settled on a new trust estate that has been separated from (or carved out of) the original trust fund. This may occur notwithstanding that the transactional documents executed to affect such a separation do not expressly speak of the asset having been settled on a new trust. The decision of the Supreme Court of South Australia in Dyda P/L & Anor v Commissioner of State Taxation [2013] SASC 156 ( Dyda ), albeit concerned with a different legislative regime, is instructive in this context. In Dyda the Supreme Court of XX Australia considered whether a series of steps to transfer control of a real property to the Dyda group gave rise to a stamp duty liability. The land in question was held in a unit trust, the Woodville Property Trust. Units in this trust were held by two family trusts, the Meeuwissen Family Trust and the Young Family Trust. The transfer of the control of the real property was effected through a series of steps. First Dyda Pty Ltd was appointed as trustee of the part of the trust assets of the Woodville Property Trust which comprised the real property. This part of the trust was to be known as the Burleigh Avenue Trust. The trust deed was amended to allow for a new type of units, funding units, which could receive income in priority to all existing units. Dyda Nominees was appointed as trustee to part of the Meeuwissen Family Trust comprising 1 ordinary unit in the Burleigh Avenue Trust. This was henceforth known as the Burleigh Avenue Trust No. 2. John Dyda was also made guardian and appointor of the Burleigh Avenue Trust No. 2. Similarly, Dyda Nominees was appointed as trustee to part of the Young Family Trust comprising 1 ordinary unit in the Burleigh Avenue Trust. This was henceforth known as the Burleigh Avenue Trust No. 3. John Dyda was also made guardian and appointor of the Burleigh Avenue Trust No. 3. The appellants argued that upon appointment of the new trustee, no rights were conferred in relation to the trust property. The rights remained as they were because the same persons remained objects and beneficiaries of the discretionary trusts. Stanley J rejected the arguments of the appellants. At paragraphs [143] - [144] he concluded as follows: 143. The appointment of Dyda Nominees as trustee of the Burleigh Avenue Trust No. 2 and No. 3, was in each case, effectively the resettlement of the units under a new trust rather than the appointment of a new trustee to existing trusts. The requisite continuity of the trust did not exist. 144 The continuity of trusts was broken because of the transfer of control of these two discretionary trusts to the Dyda group, which occurred on 8 March 2007. This was achieved by the appointment of Dyda Nominees as the trustee, and by the appointment of John Dyda as the appointor and guardian under the trusts. In his capacity as guardian, John Dyda could control the distributions of some income and of all of the capital of the trusts. A member of the class of potential beneficiaries of the trusts who was not a member of the Dyda group could not realistically expect ever again to receive any distributions under the trusts. This conclusion is reinforced by the granting of the indemnities. Accordingly, Dyda Nominees acquired an absolute interest in the ordinary units. Dyda demonstrates that in particular circumstances the appointment of different trustees and appointors over specific trust assets can cause those assets to be settled on terms of a new trust. The Commissioner's view on the potential capital gains tax implications of a 'trust split' is contained in Taxation Determination TD 2019/14 Income Tax: Will a trust split arrangement of the type described in this Determination cause a new trust to be settled over some but not all assets of the original trust with the result that CGT event E1 in subsection 104-55(1) of the Income Tax Assessment Act 1997 happens? (TD 2019/14). For this determination, a trust split is defined as an arrangement which generally involves the transfer of some of the assets of the original trust to a new trust fund that has been separated, or carved out of, the original trust fund. TD 2019/14 at paragraph 47 sets out that the purpose of such arrangements is directed to separating the functional operation of the trust. It is put into place with the intention of: (a) separating those who control and can benefit from part of the trust corpus transferred to the new trustee from those who control and benefit from the remaining assets held by the original trustee (b) removing the fiduciary obligations of the original trustee in relation to the assets transferred to the new trustee (c) removing the entitlement of the original trustee to be indemnified out of the transferred assets for expenses incurred after the introduction of the new trustee, and (d) ensuring that the new trustee will have no fiduciary obligations in respect of the assets retained by the original trustee and will have no right to be indemnified from those assets. | Detailed Reasoning - By declaration or settlement: The second element necessary for CGT event E1 to happen is that the creation of the trust is by declaration or settlement. A trust is created by declaration within the meaning of subsection 104-55(1) of the ITAA 1997 when it is created by words or conduct sufficient to demonstrate an intention to create an express trust over property ( Kafataris v. DC of T (2015) 243 FCR 291 at [26]) ( Kafataris ). Transactional documentation that evidences an express intention to hold the transferred assets subject to the terms of the trust deed, may suffice to create a trust over those assets by declaration. A trust is created by settlement when property is vested in a trustee for the benefit of others ( Taras Nominees Pty Ltd v. FC of T (2015) 228 FCR 418 at [5]; Kalantaris at [31]). A transfer of existing trust property to, and the vesting of this property in, a new trustee for the benefit of others can satisfy the description of the creation of a trust by settlement. In TD 2012/21, the Commissioner accepts that "continuity of a trust is a function of whether the trust continues in existence under trust law in contradistinction to having terminated". The determination 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 asset has been settled on terms of a different trust (TD 2012/21 paragraphs 21 and 26). | Detailed Reasoning - Application to your circumstances: Under Clauses 49 to 52 of the Trust Deed, the Trustee has power to vary the trusts declared in the Trust Deed subject to certain conditions. The facts of this ruling contain an assumption that the Trustee has the power to amend the Trust Deed in accordance with the proposed amendments. In accordance with the assumption: • The proposed amendments will not result in the termination of the Trust (provided that the amendments are validly made within the scope of the amendment power). • The amendments will not (if valid) result in any assets of the Trust being held on new and different trusts. The proposed arrangements are distinguishable from the circumstances in Dyda, and the trust splitting arrangements of the kind described in TD 2019/14 because of the following factors: • the Trust fund continues to be governed for the benefit of the beneficiaries; • there is no transfer of Trust assets with the Trustee retaining legal ownership of the Trust fund until distribution; • the Trustee is entitled to be indemnified out of all of the assets of the Trust; and • the Trustee requires the Appointor's prior written approval to exercise any of the powers contained in clauses 3, 4, 6 and 49 of this Trust Deed - noting that both the Trustee and Appointor have fiduciary obligations in respect of the exercise of their powers under the trust deed. Considering these factors together with the other elements of the proposed arrangement, it is reasonable to conclude that the proposed amendments, including the amendments to allow for an Appointor, will not result in the creation of a new trust. Nor will the appointment of an Appointor or any changes to the trustees result in the creation of a new trust (they are merely appointments of an appointor or trustee to an existing trust). In these circumstances, the Trust will continue as one trust. There will be continuity of property and membership of the Trust: the assets of the Trust will continue to be held for the benefit of the Trust beneficiaries. On the basis of the assumption that the proposed amendments are valid, and in accordance with the views expressed in TD 2012/21, neither CGT events E1 or E2 will happen by reason of the variation of the trust instrument. It should be noted that where a change is beyond the power conferred by the terms of a trust, it will be of no effect. Therefore, it cannot give rise to a resettlement of the trust and would not result in CGT events E1 or E2 happening.