Private ruling: CGT - amendment of trust vesting date
Date of advice: 27 November 2024
Published: 13 January 2025
Ruling period: Year ended 30 June 2025
Date scheme commenced: 1 July 2024

Ruling: Q1: Will the proposed variation of the trust deed to extend the trust vesting date trigger a CGT event in Part 3.1 of the Income Tax Assessment Act 1997 (ITAA 1997) by way of resettling the trust? | A1: No.

Relevant facts and circumstances: The XXX (Trust) was established by deed of settlement dated XX XX XX (Deed) for the benefit of A and descendants. The Trust is an inter-vivos family discretionary trust that was established for financial management of family assets and estate planning purposes, for the benefit of the principal beneficiaries and their descendants. The Deed (sub-clause xxx) defines the vesting day as being the earlier of: (a) the day specified in the Deed, being XX XX XX (b) a date based on descendants of King George VI, and (c) such earlier date that the Trustee determines. The Trust has not vested. The principal beneficiaries of the Trust as defined in the Deed are still living. Prior to vesting date, the Trustee intends to amend the Deed by extending the vesting date to XX XX XX, being a date within the 80-year perpetuity limit for the Trust. Pursuant to sub-clause xxx of the Deed, the Trustee has the power to revoke, alter, vary or add to all or any of the trusts, powers and provisions of the Deed, subject to: (a) there being no infringement of the rule against perpetuities (b) no adverse impact on the beneficiaries' entitlement to income from the Trust; and (c) there being no changes to the Appointer powers. The proposed amendment to the Deed constitutes a valid exercise of the trustee's amendment power contained in the of the Deed.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3.1 | Income Tax Assessment Act 1997 Division 104.

Reasons for decision: Summary: On the basis of the assumption that the proposed variation to the Deed will amend the terms of the Deed pursuant to a valid exercise of a power contained within the Deed, the amendment will not cause the Trust to terminate and a new trust to arise for trust law purposes. Therefore, no CGT event as listed in Division 104 of the ITAA 1997 will happen as a result of making the proposed variation to the 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. As per the Federal Commissioner of Taxation v. Clark (2011) 2011 ATC 20-236; [2011] FCAFC 5; (2011) 190 FCR 206; [2011] ALMD 2737; (2011) 79 ATR 550 (Clark's case) a trust will not be terminated provided that there is some degree of continuity established of the trust and any amendment to the trust is made in accordance with a power of amendment afforded to the Trustee. Following Clark's case, 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), which provides that a valid amendment to a trust pursuant to an existing power will not result in termination of the trust and therefore will not result in CGT events E1 or E2 happening when: (a) an amendment is made pursuant to an existing power (b) an amendment does not cause the trust to terminate for trust law purposes, and (c) 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 the asset has been settled on terms of a different trust. TD 2012/21 provides that a mere extension of the terms of a trust is consistent with a continuing trust when: (a) the trust deed confers an express power to alter the termination date (b) the trust deed and surrounding circumstances do not indicate that a particular trust period was a fundament feature of the particular trust relationship (c) other accompanying circumstances do not indicate a fundamental change to the trust. Taxation Ruling TR 2018/6 Income tax: trust vesting - consequences of a trust vesting confirms that prior to a trust's vesting, it may be possible for the trustee pursuant to a proper exercise of a valid power under the deed, or a court, to postpone the vesting of the trust by nominating a later date as the new vesting date. A proposed alteration by a trustee without intervention of the court will be subject to any specific requirements in the trust deed about how and when any alteration to the vesting date can occur. Under XX of the Deed, and based on the assumption that the proposed variation is made pursuant to a valid exercise of the powers contained in the Deed, the Trustee has power to vary the trusts declared in the Deed subject to certain conditions. Extending the Trust's vesting date to XX XX XX will not infringe on the rule against perpetuities. The Trustee has the power pursuant to the Deed to vary the Deed as proposed. The proposed change to the vesting date will not alter the beneficiaries or the Trust property, or beneficial entitlements to income or capital of the Trust. The proposed change will not change the continuity of the Trust or the trust property. Therefore, the proposed amendment to the Deed will not cause the Trust to vest or trigger any CGT events in Division 104 of the ITAA 1997.