Private ruling: Date of acquisition of trust units for capital gains tax
Date of advice: 28 September 2015
Published: February 2016
Ruling period: Year ending 30 June 2014
Date scheme commenced: Prior to 20 September 1985

Ruling: A1: Yes | Q1: Does Part IIIA of the ITAA 1936 and in particular section 160M(1) and section 160M(1A) ITAA 1936, apply to the 5 additional units in the X Unit Trust allocated to the XX Family Trust in late 1985 as a subdivision of units already held, making the acquisition date of the additional 5 units as if they were acquired by the XX Family Trust before 20 September 1985? | A2: Yes | Q2: Does Part IIIA of the ITAA 1936, and in particular section 160M(1) and section 160M(1A) ITAA 1936, apply to the 10 additional units in the X Unit Trust allocated to the XX Family Trust in 1989 as a subdivision of units already held, making the acquisition date of the additional 10 units as if they were acquired by the XX Family Trust before 20 September 1985? | A3: Yes | Q3: Does section 130-20 Income Tax Assessment Act 1997 (ITAA 1997) apply to the 25 additional units in the X Unit Trust allocated to the XX Family Trust and issued for no consideration in 1996, deeming the acquisition date of the additional units as if they were acquired by the XX Family Trust before 20 September 1985? | A4: Yes | Q4: Did the Deed of Variation for the X Unit Trust in late 1990s or the Deed of Rectification for the X Unit Trust made recently, re-settle the trust triggering CGT event E1 in section 104-55 ITAA 1997 (creating a trust over a CGT asset) or CGT event E2 section 104-60 ITAA 1997 (transferring a CGT asset to a trust)? | A5: 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. Parties in the transactions • XX Family Trust • X Pty Ltd - original and continuing trustee of the XX Family Trust • X Unit Trust - settled by deed of trust prior to 1985 • Trustee Pty Ltd - settlor and continuing trustee of the X Unit Trust, • Unrelated party - settlor of the X Unit Trust Timelines Prior to 1985 X Unit Trust settled The trust deed issues the original twenty units to the registered holders for no consideration. 20 units issued, 5 units to X Pty Ltd as trustee for the XX Family Trust, and 5 units to other parties 20 September 1985 Part IIIA Income Tax Assessment Act 1936 applies - Capital Gains Tax (CGT) Late 1985 X Unit Trust First issue of trust units, 10 additional units issued including 5 trust units to X Pty Ltd as trustee for the XX Family Trust. Consideration for the transaction was not present in the documents. 1989 X Unit Trust Second issue of trust units, 20 additional units issued for $1 each including 10 trust units to X Pty Ltd as trustee for the XX Family Trust. Consideration for the transaction was stated as $1 per unit. 1996 X Unit Trust Third issue of trust units, 50 additional units issued including 25 trust units to X Pty Ltd as trustee for the XX Family Trust. Consideration for the transaction was not present in the documents. Late 1990s Deed of Variation for the X Unit Trust Recently Deed of Rectification for the X Unit Trust. The Deed states that • all additional units issued in late 1985, 1989 and 1996 were issued as fully paid units for no consideration, such that there was no further amount payable and • it corrects that the issue of additional units in 1989 recorded with an issue price of $1, that no consideration was actually paid and • the issue of the additional units on each of the dates above was for the purpose of subdividing the units on issue into a more easily divisible number shortly before a transaction involving other parties acquiring units in the X Unit Trust and • the trust deed variation dated late 1990s was done so under the trustee's power to vary the trust deed using clause XX of the original trust deed, not clause X as stated in the trust deed variation. Units in the X Unit Trust The X Unit Trust owns and operates various commercial enterprises. The X Unit Trust was settled with 20 units prior to 1985. In order to create a more divisible number of units, additional units were issued on three occasions; late 1985, 1989 and 1996, to provide additional flexibility in relation any future sell down of the equity holdings to third parties. A deed of variation to the trust deed of the X Unit Trust was executed on late 1990s adding a number of procedural clauses to the trust deed. In the deed of variation, the trustee cited the power to vary the trust deed using clause X of the original trust deed. X Pty Ltd as trustee for the XX Family Trust held 10 trust units at settlement and over time purchased and sold units to gain 100% ownership of the units in the X Unit Trust. Since that date the XX Family Trust has been the sole unitholder of the X Unit Trust and there has been no change to the number of issued units in the X Unit Trust. X Unit Trust (XUT) Year Total Units in XUT Additional units issued Units held by X Pty Ltd as trustee for the XX Family Trust Change in number of units Total Prior to 1985 20 - 10 units settled 10 units Late 1985 30 10 5 units issued 15 units 1989 50 20 10 units issued 25 units 1996 100 50 25 units issued 50 units 1997 - 2014 100 - 50 units acquired 100 units During the years ended 30 June 2014 and 30 June 2015, negotiations occurred for the sale of the business owned and operated by the X Unit Trust. During this time a deed of clarification and rectification to the X Unit Trust was executed: • To confirm the basis upon which the new units issued in the X Unit Trust on late 1985, 1989 and 1996 were and always intended to be, additional issue units and • To rectify that the trust deed variation dated late 1990s was done so under the trustee's power to vary the trust deed using clause XX of the original trust deed, not clause X. At 30 June 2014 X Pty Ltd as trustee for the XX Family Trust holds 100% of the beneficial ownership in the X Unit Trust by holding 100 trust units.

Relevant legislative provisions: Section 160M(1) Income Tax Assessment Act 1936 | - (inserted by No 52 of 1986, commencing 20/09/1985) | Section 160M(1A) Income Tax Assessment Act 1936 | - (inserted by No 35 of 1990, commencing 20/09/1985) | Section 160M(5)(aa) Income Tax Assessment Act 1936 | - (inserted by No 154 of 1986, commencing 20/09/1985) | Division 7 Bonus Units in Unit Trusts, Part IIIA ITAA 1936 | Section 160ZYC Income Tax Assessment Act 1936 (inserted by No 52 of 1986) | - applies to trust bonus units issued on or after 20/09/1985 | Section 160ZYD Income Tax Assessment Act 1936 (inserted by No 52 of 1986) | - applies to trust bonus units issued on or after 20/09/1985 | Section 160ZYE Income Tax Assessment Act 1936 (amended by No 108 of 1987) | - applies to trust bonus units issued on or after 10/12/1986 | Section 160ZH(12)-(14) Income Tax Assessment Act 1936 | - (inserted by No 154 of 1986, commencing 20/09/1985) | Section 104-55 Income Tax Assessment Act 1997 (CGT event E1) | - creating a trust over a CGT asset | Section 130-20 Income Tax Assessment Act 1997 | - issue of bonus shares or units | Section 130-20(3) Income Tax Assessment Act 1997 | - modifications where neither a dividend nor assessable | Issue 1 | Question 1 | Does Part IIIA of the ITAA 1936 and in particular section 160M(1) and section 160M(1A) ITAA 1936, apply to the 5 additional units in the X Unit Trust allocated to the XX Family Trust in late 1985 as a subdivision of units already held, making the acquisition date of the additional 5 units as if they were acquired by the XX Family Trust before 20 September 1985? | Answer | Yes, 5 units issued in late 1985 with pre-CGT status. | Summary | There was not a disposal of any trust units in the X Unit Trust when 5 additional units were allocated to the XX Family Trust in late 1985. | The 5 additional trust units have the same acquisition date as the original trust units to which they relate. As the original units were issued before CGT applied, the subdivided trust units would also have a pre-CGT status. | Detailed reasoning | The X Unit Trust was settled before 1985 and 10 of 20 units issued were issued to X Pty Ltd as trustee for the XX Family Trust and 10 units to individuals A and B. The XX Family Trust acquired 50% of the trust units. | In late 1985 the X Unit Trust issued 10 additional units, 5 trust units to X Pty Ltd as trustee for the XX Family Trust and 5 to individuals A and B. At this time the XX Family Trust held a total of 15 units (10 original units plus the additional 5 units) of the 30 units in the X Unit Trust and owned 50% of the trust units. | Consideration for the transaction issuing the additional units was not present in the documents. | Which legislation applied to additional trust units issued in late 1985? | 1.1 Does Division 7 Bonus Units in Unit Trusts, Part IIIA ITAA 1936 apply? | No. | The original Capital Gains Tax legislation was inserted into ITAA 1936 by the Income Tax Assessment Amendment (Capital Gains) Act 1986 No 52 of 1986. It applied to relevant transactions from 20 September 1985. The section regarding the acquisition time of bonus units in a unit trust reads (underlining added for emphasis): Division 7-Bonus Units in Unit Trusts | Application | 160ZYC | Where - | (a) a taxpayer holds units in a unit trust (in this Division referred to as the 'original units'); | (b) an amount (in this Division referred to as the 'relevant amount') is payable to the | taxpayer by the trustee of the unit trust in respect of the original units; | (c) other units in the unit trust (in this Division referred to as the 'bonus units') are issued | to the taxpayer; | (d) the unit trust is not a corporate unit trust within the meaning of sub-section 102J (1), or | a public trading trust within the meaning of section 102R, in relation to the year of | income in which the bonus units are issued; and | (e) the relevant amount is applied by the trustee of the unit trust, in whole or in part, in | payment or part payment of the money payable by the taxpayer in respect of | the bonus units or the liability of the trustee of the unit trust to pay the relevant amount to | the taxpayer is otherwise satisfied, in whole or in part, by the issue of the bonus units, | the following provisions of this Division have effect . | Time of acquisition of certain bonus units | 160ZYD | Where no part of the relevant amount was included in the assessable income of the taxpayer of | any year of income under a provision of this Act other than this Part, the bonus units shall be deemed, for the purposes of this Part, to have been acquired by the taxpayer at the time when | the taxpayer acquired the original units. | Consideration in respect of acquisition | 160ZYE | 160ZYE (1) In respect of bonus units to which section 160ZYD applies, the amount paid by the | taxpayer in respect of the original units or, if more than one amount was paid by the taxpayer in | respect of the original units, each amount shall be deemed for the purposes of this Part to have | been paid by the taxpayer as consideration in respect of the acquisition of the original units and | the bonus units in such proportions as is reasonable in the circumstances. | 160ZYE (2) Where the relevant amount was included in the assessable income of the taxpayer | of any year of income under a provision of this Act other than this Part, the taxpayer shall be deemed, for the purposes of this Part, to have paid in respect of the acquisition of the bonus | units, a consideration equal to the amount so included in the assessable income of the | taxpayer and to have so paid that consideration at the time when the bonus units were issued | to the taxpayer." | Division 7 of Part IIIA ITAA 1936 above does not apply to the first additional issue of trust units. There was no amount payable by the X Unit Trust to the XX Family Trust in respect of the original 5 trust units held by the XX Family Trust in connection with the issue of additional trust units issued in late 1985. Consequently the requirements of section160ZYC are not met and particularly section 160ZYC(b) does not come into effect, as there was no amount payable to the unit holders. | The additional units issued in the X Unit Trust in late 1985 are not bonus units as defined in Division 7 of Part IIIA ITAA 1936, they are only additional units. | 1.2 Does section 160ZH(12) to (14) of Part IIIA ITAA 1936 apply to the subdivision of the trust units in the X Unit Trust in late 1985 treating the additional units as a division of an asset? | No. | The original Capital Gains Tax legislation in the ITAA 1936 applied to relevant transactions from 20 September 1985. The section regarding the merger, division and changes in nature of assets in sections 160ZH(12)-(14) reads: | 160ZH(12) If, in the case of the happening of any of the following events without any change in the beneficial ownership of the asset or assets concerned, that is to say- | (a) two or more assets having been merged or an asset having been divided | into two or more assets; or | (b) an asset having been changed in whole or in part into an asset of a | different nature, | the value of an asset as it existed after the happening of the relevant event (in sub-sections (13) and (14) referred to as the 'relevant asset') is in whole or in part derived from or otherwise attributable to an asset as it existed immediately before the happening of the relevant event (in sub-sections (13) and (14) referred to as the 'original asset'), then sub-sections (13) and (14) have effect. | 160ZH(13) For the purpose of determining the cost base, the indexed cost base or the reduced cost base to a taxpayer of the relevant asset on the disposal of that asset, any amount that would have been included in the cost base, the indexed cost base or the reduced cost base, as the case may be, to the taxpayer of the original asset if- | (a) the relevant event had not happened; | (b) the original asset had been disposed of at the time of the relevant event; and | (c) this Part had been in force and applied in relation to the disposal, | shall, to such extent as is reasonable, be included in the cost base, the indexed cost base or the reduced cost base, as the case may be, to the taxpayer of the relevant asset. | 160ZH(14) If the original asset continued in existence to any extent after the happening of the relevant event- | (a) for the purpose of determining the cost base, the indexed cost base or | the reduced cost base to the taxpayer of the original asset as so | continuing in existence in the event of the disposal of that asset, | the amount that would, if the relevant event had not happened, be that | cost base, indexed cost base or reduced cost base, as the case may be, | shall be reduced by any amount that, by virtue of the application of | sub-section (13) in relation to the original asset, is included in the | cost base, indexed cost base or reduced cost base, as the case may be, | to the taxpayer of the relevant asset; and | (b) to the extent (if any) to which it is necessary to apply this | paragraph for the purpose of determining the cost base, the indexed | cost base or the reduced cost base to the taxpayer of the original | asset as so continuing in existence in the event of the disposal of | that asset before the disposal of the relevant asset, the amount that | would, if the relevant event had not happened, be that cost base, | indexed cost base or reduced cost base shall be reduced by any amount | that would have been included in the cost base, the indexed cost base | or the reduced cost base, as the case may be, to the taxpayer of the | relevant asset by virtue of sub-section (13) if the relevant asset had | been disposed of immediately before the disposal of the original | asset. Apportionment of cost base upon disposal of part of asset | Taxation Determination TD 95/30 comments on the interpretation of section 160ZH(12)-(14) ITAA 1936 and states that when an asset, such as shares, is split and there is no change to the proportion of equity held by each shareholder and no change to the total capital value then there is no disposal of the shares. It is merely a change of the form of the shares. Taxation Determination TD 95/30 reads: | 1. If a company subdivides ('splits') or consolidates its share capital in accordance with section 193 of the Corporations Law in that: | (a) the original shares are not cancelled or redeemed in terms of the Corporations Law; | (b) there is no change in the total amount of authorised capital, issued capital and paid-up capital of the company; and | (c) the proportion of equity owned by each shareholder is maintained; | the shareholder does not dispose of his or her shares for capital gains purposes. While there is a change in the form of the shares, there is no change in the beneficial ownership of the shares. The issue of roll-over relief under section 160ZZP of the Income Tax Assessment Act 1936 (the Act) does not arise because there is no disposal of the shares. Section 160ZH(12)-(14) ITAA 1936 does not apply to the original 5 trust units as they are not assets under the CGT legislation as the trust units were acquired before 20/09/1985, so there are no applicable assets to split. | 1.3 Does section 160M of Part IIIA ITAA 1936 apply to declare that the subdivision of the trust units in the X Unit Trust in late 1985 is not a change of ownership and thus not a disposal of an asset? | Yes. | Section 160M(1) ITAA Act 1936 (inserted by No 52 of 1986 and commencing on 20/09/1985) states that a change in ownership of an asset shall be deemed to effect a disposal of that asset. Usually when units in a unit trust are issued to a unitholder, they are an acquisition under section 160M(5)(aa) (see former CGT Determination Number 40 , 31/01/1992). But section 160M(1A) (inserted by No 35 of 1990, commencing 20/09/1985) clarifies that a change in legal ownership of an asset must be accompanied by a change in the beneficial ownership to be a disposal of an asset. | 160M(1A) It is declared for the avoidance of doubt that a change in the legal | ownership of an asset does not constitute a change in the ownership of the | asset for the purposes of this Part unless there is also a change in the | beneficial ownership of the asset. | In this case there is not a change to the beneficial ownership of the trust units in the X Unit Trust, as no consideration was paid for the 10 additional trust units issued, there was no change in the paid-up capital of the unit trust, and the proportion of equity owned by each trust unitholder in the X Unit Trust was maintained at 50% for X Unit Trust. | Taxation Determination TD 95/30 clarifies the acquisition date of subdivided shares where the original shares were acquired before 20 September 1985. This determination states that pre-CGT shares will retain their pre-CGT status if there is no disposal of the shares as part of the subdivision: | 2. The subdivided or consolidated shares have the same date of acquisition as the original shares to which they relate. For example, if the original shares were acquired pre-CGT, the subdivided or consolidated shares also have a pre-CGT status. | … | Example 1: | XYZ Ltd's authorised share capital of $100,000 consists of 100,000 ordinary shares of $1 each. In accordance with section 193 of the Corporations Law, the company subdivides its share capital into 200,000 ordinary shares of $0.50 each on 1 July 1992. The original shares are not cancelled or redeemed under the Corporations Law. Further, the total amounts of authorised, issued and paid-up capital are unaltered and there is no change in the proportion of equity owned by each shareholder. | John acquired 2,000 ordinary shares in XYZ Ltd in September 1984 and 3,000 ordinary shares in XYZ Ltd in April 1988. Prior to the subdivision, John's post-CGT shares had a cost base of $1.00 each. | On subdivision of XYZ Ltd's share capital, there is no disposal by John of any of the original shares. John, however, now has 6,000 post-CGT ordinary shares with a cost base of $0.50 each and 4,000 pre-CGT ordinary shares. " | The spirit of former TD 95/30 is equally applicable to subdivisions of unit trusts as to subdivisions of company shares. Some subdivisions of trust units may not cause a disposal of that asset then the subdivided trust units would have the same acquisition date as the original trust units that were subdivided. | In this case, where the original trust units in the X Unit Trust were not cancelled, there was no change in the paid-up capital of the unit trust and the proportion of equity owned by each trust unitholder in the X Unit Trust was maintained, we agree that the subdivision of pre-CGT trust units by the XX Family Trust did not trigger a capital gains tax event when the additional 5 trust units in the X Unit Trust were issued in late 1985. Following on from this, we also agree that the 5 additional trust units, as a result of the subdivision of all trust units, have the same acquisition date as the original trust units to which they relate. As the original trust units in the X Unit Trust were issued before CGT applied, the 5 subdivided trust units belonging to the XX Unit Trust would also have a pre-CGT status. | Question 2 | Does Part IIIA of the ITAA 1936, and in particular section 160M(1) and section 160M(1A) ITAA 1936, apply to the 10 additional units in the X Unit Trust allocated to the XX Family Trust in 1989 as a subdivision of units already held, making the acquisition date of the additional 10 units as if they were acquired by the XX Family Trust before 20 September 1985? | Answer | Yes, 10 units issued on 1989 with pre-CGT status. | Summary | There was not a disposal of trust units in the X Unit Trust when 10 additional units were allocated to the XX Family Trust in 1989. | The subdivided trust units have the same acquisition date as the original trust units to which they relate. As the original units were issued before CGT applied or have pre-CGT status, the 10 subdivided trust units would also have a pre-CGT status. | Detailed reasoning | X Pty Ltd as trustee for the XX Family Trust held 15 trust units of the 30 units issued in the X Unit Trust and owned 50% of the trust units just before the second issue of additional trust units on 1989. | In 1989 the X Unit Trust issued 20 additional units including 10 trust units to X Pty Ltd as trustee for the XX Family Trust. At this time the XX Family Trust held a total of 25 of the 50 units in the X Unit Trust and owned 50% of the trust units. In the initial documents, consideration for the transaction issuing the additional units was written as $1 per unit, but later documents state that the issue document was in error and no consideration was paid. | Which legislation applied to additional trust units issued on 1989? | 2.1 Does Division 7 Bonus Units in Unit Trusts, Part IIIA ITAA 1936 apply? | No. | The first amendment to the Capital Gains Tax legislation was inserted into ITAA 1936 by the Taxation Laws Amendment Act (No. 3) 1987 No 108 of 1987 and it amended Division 7 of Part IIIA ITAA 1936. It applied to relevant transactions from 20/09/1985 unless there was a specific reference to a particular commencement date. Section 160ZYC remained unchanged. The 10 additional trust units issued to the XX Family Trust in the X Unit Trust in 1989 are not bonus units as defined in Division 7 of Part IIIA ITAA 1936. There was no amount payable by the X Unit Trust to the XX Family Trust in respect of the units held by the XX Family Trust connected with the issue of the 10 additional trust units in 1989, so the requirements of s.160ZYC are not met and particularly section 160ZYC(b) does not come into effect, as there was no amount payable to the unit holders. | 2.2 Does section 160M, Part IIIA ITAA 1936 apply to declare that the subdivision of the trust units in the X Unit Trust in 1989 is not a change of ownership and thus not a disposal of an asset? | Yes. | As discussed for the additional trust unit issue in late 1985, usually when units in a unit trust are issued to a unitholder they are an acquisition under section 160M(5)(aa), but section 160M(1A) (inserted by No 35 of 1990, commencing 20/09/1985) clarifies that a change in legal ownership of an asset must be accompanied by a change in the beneficial ownership for there to be a disposal of an asset. | In accordance with the former Taxation Determination TD 95/30 where the original trust units were not cancelled, there was no change in the paid-up capital of the unit trust, and the proportion of equity owned by each unitholder was maintained, there is no change of beneficial ownership. | We agree with you that the subdivision of pre-CGT X Unit Trust units by the XX Family Trust did not trigger a capital gains tax event when the 10 additional trust units were issued in 1989 as a result of a subdivision of trust units, as the original trust units still existed, there was no change in paid-up capital (clarified by the Deed of Rectification), and the proportion of equity owned by each unitholder was maintained. Following on from this, we also agree that the 10 additional trust units in the X Unit Trust have the same acquisition date as the original trust units to which they relate. As the original units in the X Unit Trust were issued before CGT applied or have pre-CGT status, the 10 new subdivided trust units would also have a pre-CGT status. | This reasoning is based on the evidence that you have provided that, as a question of fact, no consideration was paid for the issue of the 10 additional trust units. The Deed of Rectification for the X Unit Trust corrects the situation where the issue of additional units in 1989 was recorded with an issue price of $1 in a Resolution of Directors in 1989 but, in fact, had no consideration paid or required to be paid. | Question 3 | Does section 130-20 Income Tax Assessment Act 1997 (ITAA 1997) apply to the 25 additional units in the X Unit Trust allocated to the XX Family Trust and issued for no consideration in 1996, making the acquisition date of the additional units as if they were acquired by the XX Family Trust before 20 September 1985? Answer | Yes | Summary | Section 130-20(3) ITAA 1997 applies to this unit trust to provide that the date of acquisition for additional units (called bonus equities in section 130-20(1)(b)) issued for nil consideration is the date of acquisition of the original units. The trust units with an existing pre-CGT status will retain that status and any additional trust units issued as a subdivision of pre-CGT units will have a pre-CGT acquisition date. | Detailed reasoning | X Pty Ltd as trustee for the XX Family Trust held 25 trust units of the 50 units issued in the X Unit Trust and owned 50% of the trust units just before the second issue of additional trust units on 1996. | On 1996 the X Unit Trust issued 50 additional units including 25 additional trust units to X Pty Ltd as trustee for the XX Family Trust. At this time the XX Family Trust held a total of 50 units (25 units plus the additional 25 units) of the 100 units in the X Unit Trust and owned 50% of the trust units. Consideration for the transaction issuing the additional units was not present in the documents - Issue of Additional Units in the allotment of Units in the X Unit Trust dated 1996. | Which legislation applied to bonus trust units issued in 1996? | 3.1 Does section 130-20 ITAA 1997 apply to declare the acquisition date of the subdivided trust units in the X Unit Trust in 1996 for no consideration, to be the date that the original trust units were acquired? | Yes. | We agree with you that section 130-20 ITAA 1997 applies to the X Unit Trust deem the date of acquisition of the additional units issued in 1996 for nil consideration as the date of acquisition of the original units. Item 3 of the table in section130-20(3) applies for bonus equities (additional trust units) that are fully paid and relate to original equities (original trust units) acquired before 20 September 1985. These bonus equities will have an acquisition date the same as the original equities. | 3.2 In 1996, how many units in the X Unit Trust allocated to the XX Family Trust have an acquisition date before 20 September 1985? | Answer 50 Units with pre-CGT status: | 10 units issued before 20 September 1985 plus | 5 units issued in late 1985 plus | 10 units issued in 1989 plus | 25 units issued in 1996 | Any additional trust units, relating to trust units with an acquisition date of before 20 September 1985 will also be taken to have an acquisition date before 20 September 1985. The additional issue on 1996 gave one trust unit for each unit already held. At the time of the additional issue, 25 units were held, being 25 units with a pre-CGT acquisition date. Newly issued units will be treated as having the same acquisition date as the original units to which they are related, creating an additional 25 pre-CGT units. | Question 4 | Did the Deed of Variation for the X Unit Trust in late 1990s or the Deed of Rectification for the X Unit Trust made recently re-settle the trust, triggering CGT event E1 in section 104-55 ITAA 1997 (creating a trust over a CGT asset) or CGT event E2 section 104-60 ITAA 1997 (transferring a CGT asset to a trust)? | Answer: | No. | Summary | The variation and rectification of the trust deed for the X Unit Trust have not triggered CGT event E1 (creating a trust over a CGT asset) or E2 (transferring a CGT asset to a trust). | Detailed reasoning | Clause XX of the X Unit Trust entitled 'Amendment of Deed' states: | XX. The trustee may by deed supplemental hereto with the consent in general meeting of the registered holders of at least seventyfive per centum (75%) of the units make amendments or additions to this deed which they think proper having regard to all the circumstances of the case and after the execution of any such a supplemental deed this deed shall be construed and take effect as thereby added to or amended PROVIDED ALWAYS that the trustee shall have no power to make any amendment or addition to this deed so that the settlor or trustee of the fund herein-before referred to or any part thereof. | The changes to the trust deed by the deed of variation in late 1990s cover procedural matters including adding a definition of income and allowing the trustee of the trust to stream income to particular beneficiaries. | The Deed of Rectification of the The X Unit Trust states that | • all additional units issued in late 1985, 1989 and 1996 were issued as fully paid units for no consideration, such that there was no further amount payable and | • it corrects that the issue of additional units in 1989 recorded with an issue price of $1, that no consideration was actually paid and | • the issue of the additional units on each of the dates above was for the purpose of subdividing the units on issue into a more easily divisible number shortly before a transaction involving other parties acquiring units in the X Unit Trust and | • the trust deed variation dated late 1990s was done so under the trustee's power to vary the trust deed using clause XX of the original trust deed, not clause X (transfer of units clauses). | Both the trust deed variation and rectification were minuted as agreed by 100% of the trust unitholders of the X Unit Trust. | CGT event E1 occurs when a taxpayer creates a trust over a CGT asset by declaration or settlement. CGT event E2 occurs when a taxpayer transfers a CGT asset to an existing trust. | Taxation Determination TD 2012/21 clarifies that a change in the terms of a trust pursuant to an exercise of an existing power, including the amendment of the trust deed, will not result in a termination of a trust and will not result in CGT event E1 or CGT event E2 being triggered. The Determination includes as a specific example at paragraph 7 that amendments to the trust deed to add clauses such as definition of income nor a provision allowing the trustee of the trust to stream income, will not resettle the trust, provided the trust deed contains a power of amendment which is validly exercised. | Taxation Determination TD 2012/21 states | 21. Furthermore, as a general proposition, it would seem that the approach adopted by the Full Federal Court in Commercial Nominees, as explained by Edmonds and Gordon JJ in Clark, 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. Relevantly, in Commercial Nominees the Full Federal Court had stated that: | 55. …in order to determine whether losses of particular trust property are allowable as a deduction from income accruing to that trust property in a subsequent income year, it will be necessary to establish some degree of continuity of the trust property or corpus that earns the income from the income year of loss to the year of income. It will also be necessary to establish continuity of the regime of trust obligations affecting the property in the sense that, while amendment of those obligations might occur, any amendment must be in accordance with the terms of the original trust.


Tax agent question: Does the Commissioner agree that at 30 June 2014 there were 50 units in the X Unit Trust which are taken to have been acquired by XX Family Trust prior to 20 September 1985? | 56. So long as any amendment of the trust obligations relating to such trust property is made in accordance with any power conferred by the instrument creating the obligations, and continuity of the property that is the subject of trust obligation is established , there will be identity of the 'taxpayer' for the purposes of section 278 and sections 79E(3) and 80(2), notwithstanding any amendment of the trust obligation and any change in the property itself. | 22. The Commissioner formerly had been of the view that the High Court in Federal Commissioner of Taxation v. Commercial Nominees of Australia Ltd [2001] HCA 33; 2001 ATC 4336; (2001) 47 ATR 220 had advanced what on its face appeared to be a different test. That is, in the Commissioner's view at the time, the High Court had seemed not only to focus on whether the trust had come to an end, but had also envisaged that changes to one or more of the property, membership and operation of a trust might be sufficient to result in a loss of continuity even if the trust had not terminated. | 23. However in light of the Federal Court's decision in Clark , and the High Court's disposal of the Commissioner's special leave application, it is apparent that continuity of trust is a function of whether the trust continues in existence under trust law in contradistinction to having terminated. As so understood, the comments made by the Federal Court in Commercial | This determination applies both before and after its date of issue, so it is applicable to both the trust deed variation in late 1990s and the recent rectification deed. | We accept that the variation to the trust deed of the X Unit Trust on late 1990s in combination with the recent Deed of Rectification is a valid exercise of the powers in the X Unit Trust and the trust was not re-settled (see Taxation Determination TD 2012/21 ), consequently the variation and the rectification of the trust do not cause a disposal of an asset in late 1990s or recently and do not trigger CGT event E1 in section 104-55 ITAA 1997 or E2 in section 104-60 ITAA 1997.