Private ruling: CGT- Trust Resettlement
Date of advice: 3 May 2018
Published: July 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do the proposed amendments to the Trust Deed cause a resettlement such that a CGT event, including CGT event E1 or E2, happens? | A1: No

Relevant facts and circumstances: A Trust was established a number of years ago. The Settlor of the Trust is person A. A corporate entity is the Trustee of the Trust. The Appointors of the Trust are persons B, C and D. The Primary beneficiaries of the Trust are persons B and C: The Trust Deed provides the definition for General Beneficiaries. The Trustee has power under the Trust Deed to alter, add to, vary or revoke any trust or provision contained in the Deed. The Trustee with the written consent to the Appointors is seeking to amend the definition for General Beneficiaries under the Deed by removing references to spouses, widows and widowers. No other clauses or provisions of the Trust Deed are to be altered, added to, varied or revoked.

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 as a result of various CGT events. The Commissioner has released 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? which was published as a result of the court case Commissioner of Taxation v Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark’s case). Whilst Clark’s case dealt with whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, TD 2012/21 accepts that the principles set out in Clark’s case have broader application. TD 2012/21 states that a valid amendment to a trust pursuant to an existing power will not result in CGT event E1 or CGT event E2 happening 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. It is evident on the facts that the Trustee has a power of amendment to revoke, add to or vary the Trust Deed. The proposed variations do not go beyond the scope of this power of amendment. Therefore, it is considered that the Trustee’s proposed amendments will not result in a discontinuation of the trust or create a new trust while it is also a valid exercise of a power of amendment. Consequently, neither CGT events E1 or E2 nor any other CGT event arises in relation to the changes proposed.