Private ruling: CGT event E1 and E2 on trust amendment
Date of advice: 28 July 2022
Published: November 2022
Ruling period: Year ending 20XX
Date scheme commenced: 1 July 2021

Ruling: Q1: Would the amendments give rise to CGT event E1 or CGT event E2 in sections 104-55 and 104-60 of the ITAA 1997 in relation to the TARP? | A1: No.

Relevant facts and circumstances: The Trust is a non-resident discretionary trust with the central management and control not located in Australia. All beneficiaries are non-residents and include the children and remoter issue of the named beneficiaries. The Trust holds non-Australian assets and Taxable Australian Real Property (TARP). The Trustee has the power to • appoint assets for the exclusive benefit of specific beneficiaries • add a person or class of persons as beneficiaries • to amend the Trust Deed. The Trustee is undertaking a series of amendments to the Trust Deed. Collectively, these amendments: • create an Appointed Fund containing only the non-Australian assets for the exclusive benefit of a defined subset of the beneficiaries • extend the Trust Period • expand the named beneficiaries that were previously noted as the children of beneficiaries that may be entitled to the TARP assets. There is no change to the Trustee as a result of the amendments. Assumptions • The Trustee has the power to amend the clauses of the Trust Deed under the Trust Deed; • The Amending Deeds are within the amendment powers of the Trust Deed and do not enliven any restrictions or limitations on the power of amendment under 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 | Section 855-15of the Income Tax Assessment Act 1997

Reasons for decision: Summary: CGT event E1 under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) arises when a trust is created over a CGT asset, while CGT event E2 under section 104-60 is triggered when a CGT asset is transferred to an existing trust. Under section 855-15 of the ITAA 1997, a non-resident trust may be liable for capital gains tax (CGT) where the event involves Taxable Australian Real Property (TARP). Section 855-20 defines TARP to be real property situated in Australia. The Trust holds an indirect interest in Australian real property and therefore those interest would be liable for CGT if a relevant CGT event were to occur. The TARP assets do not form part of the Appointed Fund. 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) provides the Commissioners view on when CGT event E1 or E2 may apply when amendments are made to a trust. Provided the amendment to the trust deed is pursuant to a valid exercise of power or varied with the approval of a relevant court, and the changes do not cause an existing trust to terminate and a new trust to arise for trust law purposes, or the effect of the change does not lead to a particular asset being subject to a separate charter of rights or obligations, CGT even E1 or E2 will not apply. In accordance with the assumptions, the amendments do not cause the trust to terminate nor do the TARP assets become subject to a separate charter of rights and obligations that amount to those assets being settled on terms of a different trust. 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) provides the Commissioners view on when CGT event E1 would apply to transferred assets in a trust splitting arrangement. The Commissioner has formed the view that the proposed arrangement will not cause the TARP assets to be settled on a new trust such that E1 would be triggered. Rather, these assets will remain in the original trust. Therefore, the amendments will not give rise to CGT event E1 or E2 in respect of the TARP held by the trust. This ruling has not addressed any effects on the non-Australian assets.