Private ruling: Trust resettlement
Date of advice: 14 December 2016
Published: May 2017
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the proposed amendment to the Trust Deed to add a new beneficiary give rise to a termination of the existing trust or the creation of a new trust and trigger the happening of capital gains tax (CGT) event E1 or E2? | A1: No.

Relevant facts and circumstances: By deed (Trust Deed) the Trust (Trust) was created for the benefit of certain beneficiaries described in the Trust Deed. Clause X of the Trust Deed provides that the trustee may at any time and from time to time by deed or resolution revoke, add to, release settle or vary all or any of the trusts, rights or obligations or provisions of the Trust or the Deed. Clause Y of the Trust Deed provides that the trustee may appoint additional beneficiaries. The trustee wishes to vary the Trust Deed by executing a Deed of Variation appointing a new beneficiary. The Deed of Variation will be executed in the 20XX-YY financial year.

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 to beneficiaries as a result of various CGT events. The decision in Clark's case is relevant to the question of the circumstances in which, as a result of changes being made to an existing trust, a new trust comes into existence, triggering CGT event E1 or an asset is transferred into an existing trust triggering E2. Taxation Determination TD 2012/21: Income tax: does CGT even 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? sets out the Commissioner's view in respect to trust resettlements and whether or not a resettlement has occurred. TD 2012/21 asserts that a valid amendment to a trust will not result in the termination of a trust as long as: ● the amendment is made pursuant to an existing power; ● 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. In your case, the proposed variation to the existing trust deed would be a valid amendment to the trust, not resulting in a termination of the trust, and will not result in the happening of CGT event E1 in section 104-55 or CGT event E2 in section 104-60 of the Income Tax Assessment Act 1997 .