Private ruling: Capital gains tax - Trust Resettlement
Date of advice: 22 December 2016
Published: May 2017
Ruling period: Year ending 30 June 201X
Date scheme commenced: 1 July 201X

Ruling: Q1: Do the proposed amendments to the Trust Deed cause a CGT event, including CGT event E1 or E2, to happen? | A1: No

Relevant facts and circumstances: A Trust was established a number of years ago. The Trustee of the Trust is a company. There are a number of beneficiaries of the Trust. The Trustee has power under the Trust Deed to vary a number of clauses of the Trust Deed. The Trustee wants to exercise its power under Trust Deed to vary a clause of the Trust Deed in the manner set out below: ● in clause XX, inserting the following words after the word "distribution" in the fifth line: "who are the children of beneficiary B equally"; ● in clause XXX, replacing the words " beneficiary A " with "beneficiary B" and adding at the end of the clause the words "but if no person is eligible to take under the preceding provisions of this clause, the whole of the trust fund shall vest in entity A"

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 as a result of various CGT events. The Commissioner has released 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? which was published as a result of the court case Commissioner of Taxation v Clark [2011] FCAFC 5; 2011 ATC 20-236; (2011) 79 ATR 550 (Clark's case). Whilst Clark's case dealt with whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, TD 2012/21 accepts that the principles set out in Clark's case have broader application. TD 2012/21 states that a valid amendment to a trust pursuant to an existing power will not result in CGT event E1 or CGT event E2 happening 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 of rights and obligations such as to give rise to the conclusion that that asset has been settled on terms of a different trust. The Trust Deed in question allows for the Trustee to amend the Deed and in this case it is accepted that neither of the two exclusions mentioned above apply. Consequently, neither CGT event E1 nor CGT event E2 arises in relation to the changes proposed. No other CGT events are considered to arise. Accordingly, there is no tax liable as a result of the change to the Trust deed.