Private ruling: Whether a trust has been resettled
Date of advice: 10 March 2016
Published: May 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

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: The trust is a unit trust. The trustee and the unitholders now propose to amend the unit trust deed. The deed gives the trustee the power to amend the deed. All unitholders approve of the proposed amendments to the unit trust deed. No assets are being transferred as a result of the proposal.

Relevant legislative provisions: Section 104-55 of the Income Tax Assessment Act 1997 | Section 104-60 of the Income Tax Assessment Act 1997

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 which was published as a result of the court case CoT 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.