The ATO has recently presented a draft determination (TD 2012/D4) clarifying instances where capital gains tax may arise following a trustee’s valid exercise of their powers under a trust deed to amend the terms of a settled trust.


At present, ambiguity arises when an existing trust is amended but not terminated for the purposes of trust law. The issue becomes the extent to which amendments are allowable by the Commissioner before the trust is considered to be a completely new trust for tax law purposes, triggering different tax treatments and often unintended implications for tax planning.

In general terms, the Commissioner has proposed that a valid exercise of power by a trustee to vary the trust deed will not trigger a CGT event unless the particular asset in question is now subject to such different rights and obligations that it could be viewed as being settled on different terms from the trust deed altogether.

Some specific examples of acceptable variations to trust deeds pursuant to the valid exercise of the trustee’s powers under the trust deed which will not bring about a CGT event include:

1.  Adding new entities to the class of objects (eg: adding a new class of beneficiaries named under the trust deed)
2.  Expanding the trustee’s powers to invest (eg: from investing solely in listed securities to including property)
3.  Adding the definition of income and power to stream

This final example is of particular importance following the Bamford decision as it allows for the amendment of a previously settled trust deed omitting a definition of “income” to be changed without undesirable tax consequences.

One example of a variation to the trust deed which would trigger a CGT event is the situation where a trust deed is amended such that an asset forming the corpus of the trust is now held exclusively in trust for a different beneficiary. The Commissioner views this as causing the asset to be held on the terms of an entirely new trust and as such, CGT event E1 is triggered.

Please note that this Taxation Determination has currently been issued by the Commissioner in draft format only for further comment by taxation industry professionals and other interested parties. However, the determination provides valuable insight into the direction taken by the Commissioner on this issue.

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