Private ruling: Amendment to a trust deed
Date of advice: 10 September 2018
Published: February 2019
Ruling period: 1 July 2018 to 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the execution of the proposed Supplemental Deed varying the Trust Deed give rise to CGT event E1 in section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Relevant legislative provisions: 1. The ‘Trust’ is a discretionary trust established by deed. | 2. The ‘Trust’ has a corporate trustee. | 3. The ‘trustee of the Trust’ has a sole director and shareholder. | 4. The Supplemental Deed proposes to amend the Trust Deed (Deed) in the following way: | a) The entirety of clause XX will be removed from the Trust Deed; | b) The entirety of clause XX will be removed from the Trust Deed; | c) The text opposite the heading ‘Appointor’ in the Schedule to the Trust Deed be replaced with the name and address of the ‘Appointor’. | 5. The Deed at clause XX gives the trustee with ‘the written consent of the ‘Appointor’ the power inter alia, to revoke or vary any trust or provision, provided the revocation or variation does not: | ● divert or modify a vested interest in the income or capital of the Trust of a Beneficiary; | ● infringe the laws against perpetuities, relate to remoteness of vesting, the period during which income of the Trust Fund may be accumulated, extend the Termination Date or result in any trust provision becoming void; | ● result in capital representing excepted proceed as defined in the Income Tax Assessment Act 1936 (ITAA 1936) being distributed to any Beneficiary who has not received a distribution of income derived from the excepted capital. 6. The ‘Appointor’ is the first listed appointor under the ‘Schedule’. | 7. The ‘Appointor’ is defined to mean ‘successively the persons identified in the ‘Schedule’. | 8. Clause XX of the Trust Deed provides that the Appointor may in writing declare the Trustee is not obliged to obtain the Appointor’s consent. | 9. The proposed Supplemental Deed at Recitals (C) provides that a declaration by the Appointor on DD MM 2004 states ‘The Trustee is not obliged to obtain the Appointor’s consent if the first listed appointor is an Appointor of the Trust.’

Reasons for decision: Summary: The execution of the proposed Supplemental Deed is consistent with the amendment power under the Deed and will not trigger CGT event E1 under section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Detailed reasoning: Subsection 104-55 (1) of the ITAA 1997 provides: CGT event E1 happens if you create a trust over a *CGT asset by declaration or settlement. The decision in Commissioner of Taxation v David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 550 ( Clark ) was a precursor to the Commissioner’s view in 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 power contained within the trust’s constituent document, or varied with the approval of a relevant court? Clark was decided adversely to the Commissioner and further clarified by the High Court’s refusal of special leave for the Commissioner to appeal the decision. This decision followed Commissioner of Taxation v. Commercial Nominees of Australia Ltd (1999) FCA 1455; 99ATC 5115, (Commercial Nominees). The Full Federal Court’s approach in this case is still good authority for the general proposition that, assuming there is continuity of property and membership an amendment supported by a power under the deed and made in proper exercise of that power will not result in terminating the trust. These decisions verify continuity of trust is a function of whether the trust continues in existence under trust law. Paragraph 1 of TD 2012/21 provides that a valid amendment to a trust made pursuant to a power contained in the trust deed will not result in CGT events E1 or E2 happening in relation to the trust as long as: ● the amendment does not cause the trust to terminate for trust law purposes; and ● the effect of the amendment does 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. Paragraph 24 of TD 2012/21 explains that a change in the terms of a trust that is made pursuant to the exercise of an existing power including an amendment to the trust deed will not terminate the trust. Paragraph 27 of TD 2012/21 further explains even where a trust does not terminate; assets may be held on terms of a distinct trust where a trust asset is held under a different charter of rights and obligations such as to give rise to a different trust. Paragraph 26 of TD 2012/21 explains regarding the validity of an amendment, that whether a change to a trust in exercise of a power under the deed is properly supported by that power is to be determined in accordance with principles of trust law. Having regarded the scope of that power properly construed on the words on the trust deed. In the case of the proposed Supplemental Deed, the amendments will not cause the trust to terminate as the Trustee’s amendment powers under the Deed to vary any trust or provision are sufficiently broad for the proposed Supplemental Deed amendments. Also ‘the written consent of the Appointor’ is not required as the Appointor has in writing declared the Trustee is not obliged to obtain the Appointor’s consent. In addition the limitations of that Clause, to not modify a vested interest, infringe the laws against perpetuities or result in any capital representing excepted proceed being distributed to any beneficiary who has not received a distribution of income derived from the excepted capital, will not apply. The Commissioner further supports the reasoning that the relevant Clauses only operate on the death of the Appointor and being contingent confer no existing right or interest in the Trust. Hence, removing the Clauses under the proposed Supplemental Deed will not cause a trust asset to be held under a different charter of rights and obligations such as to give rise to a different trust. Similarly, amending the persons identified in the ‘Schedule’ as Appointors will not cause a different trust to arise. It is concluded the execution of the proposed Supplemental Deed is a valid exercise of the power of amendment contained in the Deed and in the Commissioner’s view will not give rise to a CGT E1 event under section 104-55 of the ITAA1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-55