Private ruling: Capital gains tax
Date of advice: 7 May 2026
Published: 3 August 2026
Ruling period: 1 July 20XX to 30 June 20XX | In this edited version, section numbers refer to the Income Tax Assessment Act 1997.

Ruling: Q1: Will executing the deed of variation and later executing the deed of appointment of distributors cause CGT events E1 or E2 (in sections 104-55 and 104-60) to happen? | A1: No. | Q2: Will dividing the distributable income and capital into shares and appointing distributors to each share cause CGT events E1 or E2 (in sections 104-55 and 104-60) to happen? | A2: No.

Relevant facts and circumstances: 1. The trust was established by a trust deed. 2. The trustee has the power to appoint a new trustee, but the trust deed doesn't create a position for an 'appointor'. 3. The trust is a discretionary trust: the trust deed gives the trustee the power to distribute income and capital to one or more of the trust's eligible beneficiaries, at the trustee's discretions. 4. Under the existing clause X, if the trustee fails to exercise its powers and discretions, the trust income and capital shall vest in all the eligible beneficiaries still living on vesting day (in equal shares). 5. Clause Y allows the trustee to vary the deed. It says the trustee may (by deed) vary the trust. Any variation may relate to the management, control, or investment of the trust fund, or to the trustee's powers or discretions. But any variation can't: • infringe the law against perpetuities • benefit the settlor, appointor, or trustee (except where any of those officeholders is a specified beneficiary), or • affect the beneficial entitlement to any amount set aside for any beneficiary (or otherwise affect any interest that has vested before the variation). 6. The trustee is considering varying the trust deed by executing a deed of variation. The proposed variation: • appoints two entities as appointors (Company A and Company B) • deletes clause X (about vesting trust income and capital) • replaces the vesting clause with a new clause X: the income and capital vests (by default) in eligible beneficiaries who hold shares in each appointor (50% for beneficiaries who hold shares in Company A, and 50% for beneficiaries who hold shares in Company B) • gives the appointors the power to divide trust income and capital into shares and appoint a distributor in respect of that share • allows distributors to direct the trustee about how to distribute the relevant share of capital and income (where the trustee has first decided to distribute income or capital) • allows the trustee to decide how to distribute shares of income and capital where the distributor doesn't give any direction. 7. Immediately after executing the deed of variation, the appointor and the trustee intend to execute a deed of appointment of distributors. The deed will: • divide distributable income and capital into two equal shares • appoint Company A as distributor over one income share and one capital share • appoint Company B as distributor over one income share and one capital share. 8. The applicant gave us copies of the trust deed and the proposed deeds of variation and appointment. We include the complete text of these documents in the facts and circumstances of this ruling. The complete text prevails over our paraphrased summaries in paragraphs 4 to 7.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 section 104-60

Reasons for decision: Summary: Will executing the deed of variation and later executing the deed of appointment of distributors cause CGT events E1 or E2 (in sections 104-55 and 104-60) to happen? No. Will dividing the distributable income and capital into shares and appointing distributors to each share cause CGT events E1 or E2 (in sections 104-55 and 104-60) to happen? No. | Detailed Reasoning - Explanation for both Questions 1 and 2: 9. CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement. (Section 104-55) 10. CGT event E2 happens if you transfer a CGT asset to an existing trust. (Section 104-60) 11. TD 2012/21 [1] addressed whether CGT events E1 or E2 happen if a trustee validly changes the terms of a trust under a variation power. The TD's answer is that the change won't cause these CGT events to happen unless: • the change causes the existing trust to terminate and create a new trust for trust law purposes, or • the variation leads to a particular asset being subject to a separate charter of rights and obligations so that the asset has been settled under a different trust. 12. In the explanations section, TD 2012/21 (at footnote 4) says the test for distinguishing a variation from a resettlement is that a variation is an arrangement that, while leaving the substratum, effects the purpose of an original trust by other means, even though the means are wholly different and the form completely changed. 13. Comments in caselaw have suggested a variation power may not allow a trustee to amend a deed in a way that would change or defeat the substratum or purpose of a trust. [2] 14. TD 2019/14 [3] addresses whether a 'trust split' causes particular assets to be subject to a separate charter of rights and obligations. TD 2019/14 describes 'trust splits' as arrangements where an existing trust 'functionally splits' so that some assets are controlled by one trustee for the benefit of one subset of beneficiaries (to the exclusion of others), and other trust assets are held by another trustee for the remaining beneficiaries. Each trustee's indemnity rights are segregated: neither can claim on the other trustee's assets. TD 2019/14 concludes that CGT event E1 happens in these circumstances, because a trustee has new obligations and beneficiaries have new rights over property. 15. Applying TD 2012/21, we need to ask 3 questions in determining whether an amendment to a trust deed triggers CGT event E1. • First, is there continuity of property and membership? • Second, does the proposed amendment lead to a particular asset being settled on terms of a different trust? (A TD 2019/14 'trust split' is an example of this.) • Third, is the proposed amendment a valid exercise of an amendment power? 16. On the first question, the proposed variations will preserve continuity of property and membership. They won't change the trust property and won't change the class of potential beneficiaries. 17. On the second question, the proposed variations won't lead to a particular asset being settled under a different trust. They won't separate the fund into two separate funds: the share will always be 50% of the combined fund, and there won't be a separate fund operating independently of the other half. There will still be just one trustee with full indemnity rights over the entire trust fund. This isn't a 'trust split' in the TD 2019/14 sense. 18. On the third question, we think the proposed variations will be effective. The amendments won't infringe the express limitations in clause Y (the variation power): they won't a) violate the rule against perpetuities, b) benefit the settlor, appointor, or trustee, or c) defeat existing beneficial entitlements. Further, we don't see how they could interfere with the trust's substratum. We don't see any essential purpose to this trust beyond being a vehicle to benefit family members in a flexible way, and the proposed variations seem consistent with that purpose. 19. It follows that the answer to both questions is 'no'. The proposed variations are consistent with the variation power in the trust deed, won't terminate the trust and create a new trust for trust law purposes, and won't carve out particular assets under a separate trust. Following ATO guidance, CGT events E1 and E2 won't happen. [1] 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? [2] For example, Lock v Westpac Banking Corporation (1991) 25 NSWLR 593at p.602 (per Waddell CJ in Equity) and Kearns v Hill (1990) 21 NSWLR 107 at pp.110-111 (per Meagher JA). [3] Taxation Determination TD 2019/14 Income tax: will a trust split arrangement of the type described in this Determination cause a new trust to be settled over some but not all assets of the original trust with the result that CGT event E1 in subsection104-55(1) of the Income Tax Assessment Act 1997 happens?