Private ruling: Trust resettlement
Date of advice: 22 October 2021
Published: January 2022
Ruling period: Year ending 30 June 2022 | Year ending 30 June 2023
Date scheme commenced: 22 October 2021

Ruling: Q1: Will the proposed amendments to the Trust Deed and shareholding of Trustee company result in CGT event E1 or E2 happening, pursuant to sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Mr and Mrs X wish to execute succession planning in their family group. The intent of the succession planning is to pass control of the group to their children when Mr and Mrs X die or are incapacitated. Mr and Mrs X are the shareholders, company directors and trust appointors of the relevant Discretionary Trusts and corporate trustees. The proposed succession planning changes include: • vary the trust deeds to amend the definition of appointors and incapacity; and • amend the corporate Trustee constitution to alter shareholding and directorship. The Trustee has the power to amend the proposed clauses under the Trust Deed and trustee company constitutions.

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 capital gains tax (CGT) events. The Commissioner's view on whether CGT event E1 or E2 happens when the terms of a trust are changed is discussed in 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 the 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? Paragraph 1 of TD 2012/21 provides that CGT events E1 and E2 do not happen if the terms of a trust are changed pursuant to a valid exercise of power contained within the trust's constituent document 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. In the present case, it is clear that the proposed amendments to the Trust Deed and corporate trustee shareholding will have no effect on the constitution of the Trust, nor its property or membership. More specifically, it will not change either the discretionary nature or the purpose of the Trust, nor the rights and responsibilities of the Trustee. Accordingly, the proposed amendments will not constitute a resettlement of the Trust and will not give rise to CGT events E1 or E2 under sections 104-55 and 104-60 of the ITAA 1997.