Posted on November 06, 2020
By Sharelle Staff and Keira Koch
When making changes to your trust deed, it is important to ensure that such alterations do not result in subsequent tax implications for the trustee to bear.
A trust is taken to have been resettled when it lacks continuity, or the terms have been varied outside the scope of the original trust deed. The effect of a resettlement is similar to transferring all assets of the trust to a new trust and can result in Capital Gains Tax and/or stamp duty becoming payable.
Trust deeds are generally able to be varied with no tax consequences, however they are subject to the overarching obligations of the original trust and any amendments must not extend beyond the scope or power of the deed. A resettlement can be distinguished from a variation in the sense that variations do not require payable tax.
The Income Tax Assessment Act 1997 (Cth) contains the relevant payable tax provisions which could be triggered by a resettlement. The test for when a resettlement has occurred was confirmed in Federal Commissioner of Taxation v Clark [2011] FCAFC 5.
It is important to ensure that any changes made to your trust deed such as amendments to the terms or members of a trust are complicit with the requirements of a variation within the applicable trust deed. In order to avoid a resettlement, any amendments made to the trust deed should adhere to the scope of the specific trust and its rules.
Each trust deed varies and it is therefore essential to review and be aware of the terms of your trust deed to reduce the risk of incurring significant tax. We strongly recommend that you contact a lawyer prior to making any variations to your trust.
Please do not hesitate to contact Sharelle Staff or one of our other lawyers to discuss your trust’s specific requirements on (03) 9853 0311 or [email protected].
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