Private ruling: CGT - rollovers
Date of advice: 19 September 2022
Published: December 2022
Ruling period: 1 July 20YY - 30 June 20YZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the change of the terms of the X Trust, under Y1, pursuant to a valid exercise of the power of amendment in the X Trust Deed, result in the creation of a new trust or the transfer of a CGT asset for the purposes of CGT event E1 or E2 of the Income Tax Assessment Act 1997 ? | A1: No | Q2: Will the transfer by W, as trustee for the X Trust, of the majority of the X Trust's assets to R (which will be wholly-owned by W), in exchange for R shares: (1) satisfy the requirements for CGT roll-over under Subdivision 122-A of the ITAA 1997; and (2) not result in any property of the X Trust being paid to, or applied for the benefit of, a beneficiary of the X Trust for the purposes of sections 99B and 99C of ITAA 1936? | A2: Question 2(1) Yes Question 2(2) Yes

Relevant facts and circumstances: 1) The X Trust was initially a ZZ trust and a "non-resident trust estate" pursuant to subsection 95(3) of the Income Tax Assessment Act 1936 ( ITAA 1936 ). The trustee of the X Trust was Z, who was a ZZ tax resident. 2) The steps outlined in the private ruling decision dated 20BB are currently being implemented to "migrate" the X Trust to Australia. Amendment of X Trust Deed 3) The following documents will give effect to the scheme outlined in the private ruling decision dated 20BB, by seeking to amend the X Trust Deed: a) Y1; b) Y2; and c) Y3. 4) As neither Y1, Y2 or Y3 have been finalised at the date of issue of this current private ruling, it has been assumed that these will be executed in substantially the same form as the drafts of these documents (which have been provided as part of this current private ruling application). Y1 5) Y1 will provide for no ZZ tax resident or foreign person to be appointed as an object or beneficiary of the X Trust in the year ending 30 June 20CC, pursuant to clause E of the X Trust Deed. 6) Clause E of the X Trust Deed is a "Restricted Power", requiring certain notice requirements to be satisfied prior to its exercise (as outlined in clause B of the X Trust Deed). 7) The Protector (X) has sought to waive the notification requirements outlined in clause B of the X Trust Deed via the "Waiver" and "Notice" documents in respect of the exercise of clause E of the X Trust Deed. 8) It is contemplated that the Trustee of the X Trust will give X a "Notice", which X will acknowledge and accept receipt of, and will waive the Y days prior written notice period required (per clause B(e) of the X Trust Deed). Y2 9) Y2 will effect the following changes: a) the resignation of Z as trustee of the X Trust (per the X Trust Deed); b) the appointment of W as the new Australian-resident trustee of the X Trust (per the X Trust Deed); c) that the X Trust will be governed by the laws of A (per the X Trust Deed); d) amend the General Variation Power in cluse xx in the X Trust Deed to ensure that the clauses excluding ZZ tax residents and foreign persons from being a beneficiary of the X Trust cannot be altered via this General Variation Power. 10) Clause D and cluse xx of Schedule A in the X Trust Deed are both "Restricted Powers" requiring certain notice requirements to be satisfied prior to its exercise (as outlined in clause B of the X Trust Deed). 11) The Protector (X) has sought to waive clause B and all other notice periods as relevant to the exercise of the above clauses in the X Trust Deed (per Y2). Y3 12) The Y3 will: a) delete clauses (as amended by Y2) of the existing X Trust Deed b) insert in their place clauses (which are new trust deed provisions in respect of the X Trust) as reproduced in Y3. 13) The above amendments have been effected pursuant to the General Variation Power in clause xx in the X Trust Deed. 14) As clause xx of Schedule A in the X Trust Deed is a "Restricted Power" requiring certain notice requirements to be satisfied prior to its exercise, the Protector has sought to waive paragraph B and all other relevant notice periods for the exercise of clause xx in the X Trust Deed (per Y3). 15) Following the execution of Y3, the X Trust Deed will be restated as contained in Y3. Amendment of General Variation Power in X Trust Deed 16) Clause xx in the X Trust Deed outlines the General Variation Power in the X Trust Deed (which allows the Trustee of the X Trust to amend and vary any provision in the X Trust Deed). 17) This General Variation Power has been amended by Y3 as follows (per the boldened text ): (ee) provided any alteration, amendment, enlargement, change, correction or modification does not, in the opinion of the Trustee, prejudice the rights of the Beneficiaries hereunder and subject to the provisions of B: (ii) the Trustee may, by supplemental indenture or otherwise, alter, amend, enlarge or modify the provisions contained in this Settlement, other than E or this paragraph , or any indenture supplemental hereto if such alteration, amendment, enlargement or modification is, in the opinion of the Trustees, beneficial to the Beneficiaries or required for the purpose of complying with any statute of A or any State or Territory thereof, or any order, rule or regulation made pursuant to such statute, or for the purpose of overcoming difficulties in the administration of the Trusts hereof; ... 18) The above amendment has been made pursuant to clause xx of the X Trust Deed. 19) As noted above, clause xx is a "Restricted Power" requiring certain notice requirements to be satisfied prior to its exercise (as outlined in clause B of the X Trust Deed). 20) Clause B of the X Trust Deed provides for: a) written notice to be given by the Trustee of the X Trust to the Protector when a "Restricted Power" under the X Trust Deed is exercised, b) for the relevant Restricted Power to only be exercised Y days after this written notice has been given and only upon this written notice being acknowledged by the Protector. 21) As outlined in Y2, the Protector (X) has sought to waive clause B and all other relevant notice periods in respect of the exercise of clause xx in the X Trust Deed. X Trust assets 22) The X Trust's current assets include: a) cash holdings; b) a portfolio which comprises ( Portfolio ): (ba) cash; (bb) Fixed Income investments; (bc) listed equities; (bd) alternative investments; c) ordinary shares in Q and S; and d) shares in companies. R 23) R was incorporated in A and will be wholly-owned by W (as Trustee of the X Trust). R will act as a family investment company. 24) X will be R's sole director, public officer and shareholder. R will have no assets or liabilities and will not have traded or carried on any investment activity since incorporation. 25) X, in their capacity of R's sole Director, may from time to time pay dividends to W (as provided for by the R Constitution) which W would then distribute to the X Trust's beneficiaries. 26) R will not pay any significant dividends in the near future but will instead accumulate its income and gains, and pay A tax on its income and gains. Transfer of X Trust assets to R 27) After W becomes the X Trust's new trustee, it will transfer some of the X Trust's assets to R, in exchange for R shares. 28) W will choose to obtain a roll-over under Subdivision 122-A of the Income Tax Assessment Act 1997 ( ITAA 1997 ) when it transfers some of the X Trust's assets to R. 29) W will transfer the X Trust's assets to R via the following steps: a) shortly before Y2 is signed (by Z and W), Z will convert all of its cash holdings; b) shortly after Y2 has been signed (that is, after W becomes the new Trustee of the X Trust): (ba) X will transfer to W (for $X) the single issued share in R. (bb) W (as Trustee for the X Trust) will be R's sole shareholder. 30) Shortly after the transfer to W of the R share, W (as Trustee for the X Trust) will transfer to R: a) $1.00the majority of the X Trust's cash; b) the Portfolio; and c)the Q and S shares; in exchange for R issuing shares to W which are equal to the market value of the X Trust's assets contributed by W (as listed above at paragraph 30 (a), (b) & (c)) and W will choose to apply the CGT rollover under Subdivision 122-A of the ITAA 1997. 31) After applying the CGT rollover under Subdivision 122-A of the ITAA 1997, W (as Trustee of the X Trust) will hold the following assets: a) all of the issued R shares; b) the interests in companies; and c) some cash.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 section 104-60 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 122-15 | Income Tax Assessment Act 1997 section 122-20 | Income Tax Assessment Act 1997 section 122-25 | Income Tax Assessment Act 1936 section 99B | Income Tax Assessment Act 1936 section 99C

Reasons for decision: Summary: No | Detailed Reasoning - Legislative provisions: 1) Subsection 104-55(1) of ITAA 1997 states that: 104-55(1) CGT event E1 happens if you create a trust over a *CGT asset by declaration or settlement. | Detailed Reasoning - Note:: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event E1 will not happen merely because of a change in the trustee. 2) Subsection 104-60(1) of ITAA 1997 states that: 104-60(1) CGT event E2 happens if you transfer a *CGT asset to an existing trust. | Detailed Reasoning - Note:: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event E2 will not happen merely because of a change in the trustee. 3) 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 ) relevantly provides as follows: 21. Furthermore, as a general proposition, it would seem that the approach adopted by the Full Federal Court in [ Federal Commissioner of Taxation v. Commercial Nominees of Australia Ltd [1999] FCA 1455], as explained by Edmonds and Gordon JJ in [ Commissioner of Taxation v. David Clark ; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550], is authority for the proposition that assuming there is some continuity of property and membership of the trust, an amendment to the trust that is made in proper exercise of a power of amendment contained under the deed will not have the result of terminating the trust, irrespective of the extent of the amendments so made so long as the amendments are properly supported by the power. 24. ...the ATO accepts that a change in the terms of the trust pursuant to exercise of an existing power (including an amendment to the deed of a trust), ...will not result in a termination of the trust and, therefore, ..., will not result in CGT event E1 happening. 26. Whether a purported change to a trust in exercise of a power under the deed is properly supported by the power is to be determined in accordance with principles of trust law having regard to the scope of the power properly construed. 6 Relevant to this question will be whether the deed itself explicitly specifies conditions (including procedural conditions) that need to be satisfied for the exercise of the power to be effective 7 . 6 The scope of the relevant power is determined by the construction of the words of the trust deed, the surrounding context and any relevant admissible evidence. See for example Jenkins v. Ellett [2007] QSC 154 where the trustee was found not to have the power to vary the trust in the manner contended. Note further that invalid amendments, being of no effect, would not of themselves result in CGT events E1 or E2 happening. 7 For example, in Andtrust v. Andreatta [2015] NSWSC 38, the trust deed granted the trustee power to extend the vesting date of the trust, provided the rule against perpetuities was not infringed. | Detailed Reasoning - Y1: 4) The amendments contained in Y1 have been effected pursuant to clause E in the X Trust Deed. 5) As clause E of the X Trust Deed is a "Restricted Power", clause B of the X Trust Deed (about certain notification requirements being satisfied prior to the exercise of clause E) needs to be complied with. 6) Per paragraph 7 above (in the ' Relevant facts and circumstances ' section), X (as Protector) has sought to waive the notification requirements in clause B of the X Trust Deed and the procedural requirements for exercise of clause E of the X Trust Deed have been satisfied. 7) Therefore, the amendments made to the X Trust Deed under Y2 have been validly effected. | Detailed Reasoning - Y2: 8) The amendments contained in Y2 have been effected pursuant to the following: a) the General Variation Power in clause xx in the X Trust Deed b) appointment of trustee clause of the X Trust Deed c) laws governing the trust clause of the X Trust Deed. 9) As clause D and clause xx of the X Trust Deed are all "Restricted Powers", clause B of the X Trust Deed (about certain notification requirements being satisfied prior to the exercise of clause D and clause xx) needs to be complied with. 10) As X (Protector) has sought to waive the notice requirements in clause B (and all other notice requirements) of the X Trust Deed per paragraph 11 above (in the ' Relevant facts and circumstances ' section), the procedural conditions relevant to the exercise of clause D and clause xx of Schedule A X Trust Deed have been satisfied. 11) Therefore, the amendments to the X Trust Deed under Y2 have been validly effected. | Detailed Reasoning - Y3: 12) The amendments contained in the Y3 have been effected pursuant to the General Variation Power in clause xx of the X Trust Deed. 13) As this General Variation Power is a "Restricted Power", the notice requirements in clause B of the X Trust Deed must be complied with. According to paragraph 14 above (in the ' Relevant facts and circumstances ' section), X (as Protector) has sought to waive the notice requirements in clause B of the X Trust Deed in respect of the exercise of the General Variation Power. As such, the procedural conditions relevant to the exercise of the General Variation Power have been satisfied. 14) Therefore, the amendments to the X Trust Deed under the Y3 have been validly effected. | Detailed Reasoning - Amendment to the General Variation Power in the X Trust Deed: 15) The amendment to the General Variation Power in clause xx of the X Trust Deed have been effected pursuant to the General Variation Power in clause xx of the X Trust Deed. 16) As this General Variation Power is a "Restricted Power", the notice requirements in clause B of the X Trust Deed must be complied with. According to paragraph 21 above (in the ' Relevant facts and circumstances ' section), X (as Protector) has sought to waive the notice requirements in clause B of the X Trust Deed in respect of the exercise of the General Variation Power. As such, the procedural conditions relevant to the exercise of the General Variation Power have been satisfied. 17) Therefore, the amendments to the General Variation Power in clause xx in the X Trust Deed have been validly effected. | Detailed Reasoning - Termination of trust: 18) Paragraphs 21 and 24 in TD 2012/21 state that amendments to a trust made in the proper exercise of an amendment power contained in a trust deed will not result in the termination of that trust, provided that there is still some continuity of property and membership for that trust. 19) Further, paragraph 26 in TD 2012/21 provides that whether a " purported change to a trust in exercise of a power under the deed is properly supported by the power is to be determined in accordance with principles of trust law having regard to the scope of the power properly construed '", and whether the trust deed itself explicitly specifies conditions (including procedural conditions) that need to be satisfied for the exercise of the power to be effective. 20) The "Note" to subsection 104-55(1) and 104-60(1) also states that CGT event E1 and CGT event E2 will not happen merely because there is a change of trustee. 21) The cumulative effect of the above (Y1, Y2 and Y3) is to 'migrate' the X Trust to be an A resident for income tax purposes, via the appointment of a new trustee company (W). 22) From what has been outlined above (in the 'Relevant facts and circumstances'), the assets and membership (beneficiaries) of the X Trust will remain significantly the same as after the migration. There has been no significant change to the X Trust's assets and no new trust has been created according to the information stated at the 'Relevant facts and circumstances'. 23) To enable the migration of the X Trust to occur, various provisions of the X Trust have been amended. As outlined above in paragraphs 4 - 17, the X Trust Deed provisions have been amended and the associated procedural conditions have been satisfied for these amendments to be effective. Therefore, the powers contained within the X Trust Deed have been valid exercised. 24) In the absence of other circumstances (such as a change to trust property or a change to trust objects), a mere change in trustee (that is, the appointment of W as the new trustee of the X Trust) will not cause CGT event E1 or E2 to occur. Therefore, the appointment of W as the new trustee of the X Trust of itself will not cause CGT event E1 or E2 to occur in the circumstances outlined above (at the in the 'Relevant facts and circumstances'). | Detailed Reasoning - Question 2: Will the transfer by W, as trustee for the X Trust, of the majority of the X Trust's assets to R (which will be wholly-owned by W), in exchange for R shares: (1) satisfy the requirements for CGT roll-over under Subdivision 122-A of the ITAA 1997; and (2) not result in any property of the X Trust being paid to, or applied for the benefit of, a beneficiary of the X Trust for the purposes of sections 99B and 99C of ITAA 1936? | Summary: 2(1) Yes 2(2) Yes | Detailed Reasoning - Legislative provisions: 25) Section 108-5 of the ITAA 1997 provides the following definition of CGT asset: 108-5(1) A CGT asset is: (a) any kind of property; or (b) a legal or equitable right that is not property. 108-5(2) Note 1 : Examples of CGT assets are: • land and buildings; • shares in a company and units in a unit trust; • options; • debts owed to you; • a right to enforce a contractual obligation; • foreign currency. 26) Section 104-10 of the ITAA 1997 provides for when a CGT asset is considered to be 'disposed of': 104-10(1) CGT event A1 happens if you *dispose of a *CGT asset. 104-10(2) You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. | Detailed Reasoning - Note:: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2) ). This means that CGT event A1 will not happen merely because of a change in the trustee. 104-10(3) The time of the event is: (a) when you enter into the contract for the *disposal; or (b) if there is no contract - when the change of ownership occurs. | Detailed Reasoning - Example:: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000. The gain is made in the 1998-99 income year (the year you entered into the contract) and not the 1999-2000 income year (the year that settlement takes place). 27) Subdivision 122-A of ITAA 1997 outlines the conditions which must be satisfied to obtain a rollover for a disposal of CGT assets by a trustee to a wholly-owned company. 28) Section 122-15 of ITAA 1997 provides for when a trustee can choose such a rollover: If you are ...a trustee, you can choose to obtain a roll-over if one of the *CGT events (the trigger event ) specified in this table happens involving you and a company in the circumstances set out in sections 122-20 to 122-35. | Detailed Reasoning - Event No. What you do: A1 *Dispose of a CGT asset, or all the assets of a business, to the company | Detailed Reasoning - Note 1:: The roll-over starts at section 122-40. | Detailed Reasoning - Note 2:: Section 103-25 tells you when you have to make the choice. | Detailed Reasoning - Example:: Gavin runs a plumbing business. He wants to incorporate it so he disposes of all its assets to a company. He becomes the sole shareholder of the company 29) The other relevant legislative provisions to be satisfied to obtain the rollover under Subdivision 122-A of ITAA 1997 include: SECTION 122-20 What you receive for the trigger event 122-20(1) The consideration you receive for the trigger event happening must be only: (a) *shares in the company; or (b) for a *disposal of a *CGT asset, or all the assets of a business, to the company (a disposal case ) - shares in the company and the company undertaking to discharge one or more liabilities in respect of the asset or assets of the *business (as appropriate). | Detailed Reasoning - Note:: There are rules for working out what are the liabilities in respect of an asset: see section 122-37. 122-20(2) The *shares cannot be *redeemable shares. 122-20(3) The *market value of the *shares you receive for the trigger event happening must be substantially the same as: (a) for a disposal case - the market value of the asset or assets you disposed of, less any liabilities the company undertakes to discharge in respect of the asset or assets (as appropriate); or (b) for another trigger event (a creation case ) - the market value of the CGT asset created in the company (the created asset ). 122-20(4) In working out if the requirement in paragraph (3)(a) is satisfied, if the *market value of the *shares is different to what it would otherwise be only because of the possibility of liabilities attaching to the asset or assets, disregard the difference. | Detailed Reasoning - Note:: The company may have to pay income tax if an amount is included in its assessable income because of a CGT event happening to an asset you disposed of, or it may have a liability because of accrued leave entitlements of employees. The market value of the shares will reflect these contingent liabilities. SECTION 122-25 Other requirements to be satisfied 122-25(1) You must own all the *shares in the company just after the time of the trigger event. | Detailed Reasoning - Note:: You must own the shares in the same capacity as you owned or created the assets that the company now owns. 122-25(5) The *ordinary income and *statutory income of the company must not be exempt from income tax because it is an *exempt entity for the income year of the trigger event. 122-25(7) If you are a trustee of a trust at the time of the trigger event, either: (a) at that time, the trust must be a *resident trust for CGT purposes and the company must be an Australian resident; or... 30) Section 99B of ITAA 1936 states: SECTION 99B RECEIPT OF TRUST INCOME NOT PREVIOUSLY SUBJECT TO TAX 99B(1) [Amounts paid to, or applied for benefit of, beneficiary] Where, at any time during a year of income, an amount, being property of a trust estate, is paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income, the assessable income of the beneficiary of the year of income shall, subject to subsection (2), include that amount. 99B(2) [Amounts not included in assessable income] The amount that, but for this subsection, would be included in the assessable income of a beneficiary of a trust estate under subsection (1) by reason that an amount, being property of the trust estate, was paid to, or applied for the benefit of, the beneficiary shall be reduced by so much (if any) of the amount, as represents: (a) corpus of the trust estate (except to the extent to which it is attributable to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer of a year of income); (b) an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer of a year of income; (ba) an amount that is non-assessable non-exempt income of the beneficiary because of section 802-17 of the Income Tax Assessment Act 1997 ; (c) an amount: (i) that is or has been included in the assessable income of the beneficiary in pursuance of section 97; or (ii) in respect of which the trustee of the trust estate is or has been assessed and liable to pay tax in pursuance of section 98, 99 or 99A; or (iii) that is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4); (d) an amount that is or has been included in the assessable income of any taxpayer (other than a company) under section 102AAZD; or (e) if the beneficiary is a company - an amount that is or has been included in the assessable income of the beneficiary under section 102AAZD. 99B(2A) [Excluded amounts] An amount that is not included in a beneficiary's assessable income because of paragraph (2)(d) or (e) is not assessable income and is not exempt income. 99B(3) [ company ] In paragraphs (2)(d) and (e): company means a company other than a company in the capacity of a trustee. 31) Section 99C of ITAA 1936 states: SECTION 99C DETERMINING WHETHER PROPERTY IS APPLIED FOR BENEFIT OF BENEFICIARY 99C(1) In determining for the purposes of section 99B whether any amount has been applied for the benefit of a beneficiary of a trust estate, regard shall be had to all benefits that have accrued at any time to the beneficiary (whether or not the beneficiary had rights at law or in equity in or to those benefits) as a result of the derivation of, or in relation to, that amount, irrespective of the nature or form of the benefits. 99C(2) Without limiting the generality of subsection (1), an amount shall be taken, for the purposes of section 99B, to have been applied for the benefit of a beneficiary if: (a) whether by re-investment, accumulation, capitalization or otherwise, and whether directly or indirectly, the amount has been so dealt with that it will, at a future time, and whether in the form of income or not, enure for the benefit of the beneficiary; (b) the derivation of the amount has operated to increase the value to the beneficiary of any property or rights of any kind held by or for the benefit of the beneficiary; (c) the beneficiary has received or become entitled to receive any benefit (including a loan or a repayment, in whole or in part, of a loan, or any other payment of any kind) provided directly or indirectly out of that amount or out of property or money that was available for the purpose by reason of the derivation of the amount; (d) the beneficiary has power, by means of the exercise by the beneficiary of any power of appointment or revocation or otherwise, to obtain, whether with or without the consent of any other person, the beneficial enjoyment of the amount; or (e) the beneficiary has directly or indirectly assigned to another person his or her interest in the amount or is able, in any manner whatsoever, and whether directly or indirectly, to control the application of that interest. | Detailed Reasoning - Application of the law: Subdivision 122-A rollover 32) Per paragraph 30 above (in the ' Relevant facts and circumstances ' section), W (as Trustee of the X Trust) will transfer the following of its assets to R: (a) the majority of the X Trust's cash; (b) the Portfolio; and (c) the Q and S shares. 33) To obtain the rollover in Subdivision 122-A of the ITAA 1997, section 122-15, 122-20 and (the relevant subsections in) 122-25 of ITAA 1997 must be complied with. | Detailed Reasoning - CGT assets: 34) These assets which are transferred to R by W are all CGT assets coming within the definition in section 108-5 of the ITAA 1997. | Detailed Reasoning - Trigger event: 35) According to section 122-15 of ITAA 1997, a trustee can choose to obtain the rollover under Subdivision 122-A of the ITAA 1997 if one of the CGT events specified within the table in this section (the 'trigger event') happens to a trustee and a company in the circumstances set out in section 122-20 to 122-35 of ITAA 1997. 36) When W transferred the assets in paragraph 30 (in the ' Relevant facts and circumstances ' section) to R, W disposed of these assets according to section 104-10 of the ITAA 1997. Therefore, the applicable 'trigger event' for the purposes of section 122-15 of the ITAA 1997 is CGT event A1. 37) According to paragraph 28 above (in the ' Relevant facts and circumstances ' section), W will choose to obtain the rollover under Subdivision 122-A of the ITAA 1997. Note 2 in section 122-15 of the ITAA 1997 sets out how that choice must be made. | Detailed Reasoning - Consideration for trigger event: 38) Section 122-20 of ITAA 1997 states that the consideration received by W for the trigger event must be only the shares in R (subsection 122-20(1)) and R shares which are not redeemable shares (subsection 122-20(2)). Further, the R shares issued to W must be "the market value of the asset or assets [W] disposed of, less any liabilities [R] undertakes to discharge in respect of the asset or assets (as appropriate)". 39) Paragraph 30 above (in the ' Relevant facts and circumstances ' section) states that R will issue shares to W which are equal to the market value of the X Trust's assets that are transferred to R. Therefore, section 122-20 of ITAA 1997 will be satisfied. | Detailed Reasoning - Share ownership: 40) Subsection 122-25(1) of the ITAA 1997 provides that W must own all the shares in R "just after the time of the trigger event". 41) According to paragraph 31(a) above (in the ' Relevant facts and circumstances ' section), W will own all of the issued shares in R and will satisfy subsection 122-25(1) of ITAA 1997. No exempt income and not an exempt entity 42) Subsection 122-25(5) of the ITAA 1997 provides that the ordinary and statutory income of R must not be exempt income as it is an exempt entity in the income year of the trigger event. 43) According to the information about R in paragraph 23 - 26 above (in the ' Relevant facts and circumstances ' section), subsection 122-25(5) of ITAA 1997 appears to be satisfied. | Detailed Reasoning - Australian residency: 44) Subsection 122-25(7) of the ITAA 1997 provides that at the time of the trigger event, the relevant trust and company (R) must both be Australian residents. 45) As the X Trust and R are both A tax residents from the financial year ending 30 June 20YZ, subsection 122-25(7) of ITAA 1997 is satisfied. 46) Therefore, as sections 122-15, 122-20 and (the relevant subsections in) 122-25 of ITAA 1997 have been complied with, W is able to obtain the rollover in Subdivision 122-A of the ITAA 1997. Section 99B & 99C of ITAA 1936 47) The transfer of the X Trust's assets by W to R (as specified in paragraph 30 above (in the ' Relevant facts and circumstances ' section)) and the choice by W to apply the roll-over under Subdivision 122-A of ITAA 1997 to this transaction will not itself, without more, cause section 99B or 99C of the ITAA 1936 to be engaged. 48) However, we cannot provide any indication at this time of whether section 99B or 99C of the ITAA 1936 might be engaged on transactions associated with R subsequent to the Subdivision 122-A rollover occurring (including the payment of dividends by R to beneficiaries in future and/or the accumulation of income and gains by R).

Question 1: Will the change of the terms of the X Trust, under Y2, pursuant to a valid exercise of the power of amendment in the X Trust, result in the creation of a new trust or the transfer of a CGT asset for the purposes of CGT event E1 or E2 of the Income Tax Assessment Act 1997 ?