Private ruling: CGT Event E1 & E2
Date of advice: 7 June 2017
Published: September 2017
Ruling period: 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will CGT events E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997) occur on the removal of the current appointer of the relevant trust and the appointment of a new appointer and guardian pursuant to and in accordance with the clause of the trust deed of the relevant trust? | A1: No.

Relevant facts and circumstances: You are a discretionary trust. You are an Australian resident for income tax purposes. Company A is the trustee of the trust. Company A is owned by Entity 1 and Entity 2. Both Entity 1 and Entity 2 are Australian residents for income tax purposes. You are proposing to change the appointer and guardian for estate planning purposes. Company B is the current appointer and guardian of the trust. The new appointer and guardian will be changed via a resolution to change appointor by the directors of Company B (the current appointor) and execute a Memorandum of Appointment to effect the change for Company C to become the new appointor as per the clauses in the trust deed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-55 and | Income Tax Assessment Act 1997 section104-60.

Reasons for decision: Summary: Division 104 of the ITAA 1997 sets out all the CGT events for which you can make a capital gain or loss. CGT event E1 happens under subsection 104-55(1) of the ITAA 1997 if you create a trust over a CGT asset by declaration or settlement. CGT event E2 happens under subsection 104-60(1) of the ITAA 1997 if you transfer a CGT asset to an existing trust. The Commissioner considered the issue of whether CGT event E1 or E2 would apply if the terms of the trust are changed due to a valid exercise of power in the trust deed in Taxation Determination TD 2012/21 Income Tax: does CGT event E1 or E2 in section 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? Paragraph 1 of TD 2012/21 answers this question by stating the following: No. in these circumstances neither CGT event E1 nor CGT event E2 in sections 104-55 or 104-60 of the ITAA 1997 happens 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 or rights and obligations such as to give to the conclusion that the asset has been settled on terms of a different trust. In your case, you are proposing to change the appointer and guardian for estate planning purposes. You have provided the deed of settlement which at a specific clause of the deed allows any other person or persons who is specifically so appointed and authorised by deed, Will or memorandum in writing executed by the Appointer. Furthermore, a specific clause of the deed provides a power of amendment for the trustee. You are not you creating a trust over a CGT asset by declaration or settlement nor are you transferring a CGT asset to an existing trust as per subsections 104-55(1) of the ITAA 1997 and 104-60(1) of the ITAA 1997 respectively. Furthermore, TD 2012/21 states there is no CGT event E1 or E2 in sections 104-55 or 104-66 of the ITAA 1997 if the terms of the trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document. In your case, you are proposing to change the appointer and guardian for estate planning purposes. You have provided the deed of settlement which at clause 9.1 of the deed allows any other person or persons who is specifically so appointed and authorised by deed, Will or memorandum in writing executed by the Appointer or a Successor. Furthermore, the trustee has a power of amendment under clause 12 of the trust deed. Consequently, CGT events E1 & E2 will not occur on the change of appointer and guardian of the trust.