Private ruling: CGT Events E1 and E2
Date of advice: 19 September 2018
Published: October 2018
Ruling period: Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022
Date scheme commenced: 1 July 2018

Ruling: A1: No. | Q1: Will the proposed amendments to the Trust Deed result in a trust resettlement and therefore trigger CGT Event E1 or E2 under Division 104 of the Income Tax Assessment Act 1997 ? | A2: No.

Relevant facts and circumstances: The Trust was settled in 19XX. The Trust has not vested. The Trustee proposes to make a resolution to nominate a class of beneficiaries. The Trustee also proposes to amend the Trust Deed to remove several classes of beneficiary. The Trustee has powers under the Trust Deed to make the nominations and the amendment.

Relevant legislative provisions: Section 104-55 of the Income Tax Assessment Act 1997 | Section 104-60 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: For the proposed modifications to the Trust Deed to not result in any vesting or resettlement issues the following conditions must be met: 1. the trust must not have already vested at the time of the modification (TR 2018/6); 2. the trust deed must contain valid powers to allow the trustee to make the proposed modifications (TD 2012/21); 3. the amendment must not cause the trust to terminate for trust law purposes; and (TD 2012/21), 4. the effect of the amendment must 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 that asset has been settled on terms of a different trust (TD 2012/21). In this case the trust has not vested and the first condition listed above does not need to be considered. | Detailed Reasoning - Trustee Resolution: The Trustee proposes to enact a resolution to expand the Special Class of beneficiaries. The Trustee is given power to do this under the Trust Deed. All of the conditions listed above will be met and therefore neither CGT event E1 or E2 will occur on the making of the resolution. | Detailed Reasoning - Trust Deed Amendment: 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? provides that determining if a trustee has the power to amend the trust deed takes careful consideration of the terms of the deed. Paragraphs 24 and 26 of TD 2012/21 provide the following: … 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), or court approved variation, will not result in a termination of the trust and, therefore, subject to the observation in paragraph 27 below, will not result in CGT event E1 happening. and 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. 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. A modification of the Trust Deed has been proposed to remove a number of specified beneficiaries from the Schedule to the Trust Deed. Under the Trust Deed the Trustee has wide ranging powers to make amendments. The Trustee’s powers under the Trust Deed would allow the modification. Further, to this the proposed amendment will not cause the termination of the Trust and will not lead to a separate asset being subject to a specific charter of rights. Based on the facts provided, all of the conditions as listed will be met and due to this CGT Event E1 or E2 will not occur on the exercising of the proposed amendment.

Subject: CGT Events E1 and E2: Will the proposed nomination of additional beneficiaries by the Trustee in accordance with its powers under the Trust Deed result in a trust resettlement and therefore trigger CGT Event E1 or E2 under Division 104 of the Income Tax Assessment Act 1997 ?