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1 Will amending the Blue Family Trust (the Trust) to expand the class of Beneficiaries cause capital gains tax (CGT) event E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997) to happen?

1 No. This private ruling applies for the following period: Years ended 30 June 20xx to 30 June 20xx, inclusive. The scheme commences on: 1 July 20xx Background facts The Blue Family Trust (the Trust) On xx, the Blue Family Trust (the Trust) was settled. Trust Deed of the Trust Broadly, clause X(x) of the Trust Deed provides that the General Beneficiaries include the Specified Beneficiaries, the spouses and widows/widowers of the Specified Beneficiaries, the siblings of the persons named in Item 4 of the Schedule and the children and grandchildren of those siblings and any of the following entities: •                     the Trustee of any eligible trust •                     any eligible corporation •                     any other legal entity in which at least one share or other interest is owned or held by any beneficiary, and •                     such additional person, corporations or trusts as named in Item 5 of the Schedule. Clause xx provides that the Specified Beneficiaries are: •                     Person 1 and Person 2 •                     the children, grandchildren and parents of Person 1 and Person 2

•                     the spouses of the children of Person 1 and Person 2 •                     any other trust to which any of the beneficiaries of the Trust are a beneficiary, and •                     any company in which any of the beneficiaries of the Trust is a shareholder or officeholder. Clause xx of the Trust Deed states: 'excluded class' shall mean and include each of the following persons namely: •                     the Settlor; •                     the spouse for the time being of the Settlor; •                     every person claiming under or in right of the Settlor; •                     any person or corporation at any time settling any property of the trustee to be held upon the trusts of these presents; •                     every corporation and the Trustee of every trust of settlement in or under which any other member of the excluded class has any interest so long as such interest continues; Clause xx of the Trust Deed provides:

•                     The Trustee may at any time and from time to time by Deeds revocable or irrevocable for the purpose of resettlement or variation of the trusts conditions powers or provisions as herein provided revoke add to or vary all or any of the trusts herein or any of the trusts constituted by any earlier resettlement or variation or may by the same or any other Deed or Deeds declare any new or other trusts or powers concerning the Trust Fund or any pat of parts thereof otherwise vary the provisions of this Trust Deed so that any law against perpetuities is not in any event infringed and so that any new or other trust powers discretions alterations or variation: ­        shall not be in favour of or for the benefit or result in any benefit for any time being a member of the excluded class. ­        shall not affect the beneficial entitlement to any amount set aside for any beneficiary or otherwise effect any interest which is vested prior to the variation or any alteration or addition. •                     A deed executed under sub-clause (a) of this clause shall be revocable unless expressly states to be irrevocable. Clause xx of the Trust Deed states:

Notwithstanding anything hereinbefore contained or implied the Trustee may any time or times by deed or deeds revocable or irrevocable executed at any item before the vesting day appoint any person corporation or institution for the time being living or in existence (other than a person corporation or institution coming within the definition of 'the excluded class' to be a beneficiary and such person corporation or institution shall form the date of execution of such deed be a beneficiary. Proposed amendment to the Trust Deed Person 1 and Person 2 do not have any children. They wish to ensure that the Trustee has the ability to make distributions to charities in the future. To this end, it is proposed that the Trust Deed be amended to expand the class of persons who are General Beneficiaries, as follows: The Trustee in exercise of the Trustee's powers in the Trust Deed amends the definition of 'the general beneficiaries' in xx of the Trust Deed by adding new sub-paragraph XX immediately after existing sub-paragraph v of the clause: XX any charity or religious institution in Australia which the Trustee declares in writing to be a general beneficiary.

Income Tax Assessment Act 1997 section 104-55 Income Tax Assessment Act 1997 section 104-60

Explanation of the legislation Creating a trust over a CGT asset: CGT event E1 Subsection 104-55(1) of the ITAA 1997 provides that CGT event E1 happens when a trust is created over a CGT asset by declaration or settlement. Pursuant to subsection 104-55(2), the CGT event happens at the point in time the trust is created. Therefore, for CGT event E1 to occur, it is required that there be both the creation of a trust and that this be done by way of declaration or settlement. Guidance on the Commissioner's view on whether a valid exercise of a trustee's power will trigger CGT events E1 and E2 is found in 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 contained within the trust's constituent document, or varied with the approval of a relevant court (TD 2012/21). Specifically, paragraph 24 of TD 2012/21 states: Even though Clark [ [1] ] and Commercial Nominees [ [2] ]

were decided in the context of whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying relevant losses, the ATO accepts the principles set out in these cases have broader application. Relevantly, the principles established by those cases are also relevant to the question of the circumstances in which CGT event E1 or E2 may happen as a result of changes being made to the terms of an existing trust pursuant to a valid exercise of a power in the deed (including a power to amend). In light of those principles, the ATO accepts that a change in the terms of the trust pursuant to exercise of an existing power (including an amendment to the deed of a trust), or court approved variation, 4 will not result in a termination of the trust and, therefore, subject to the observation in paragraph 27 below, will not result in CGT event E1 happening. Paragraph 26 of TD 2012/21 further explains that: Whether a purported change to a trust in exercise of a power under the deed is properly supported by the power is to be determined in accordance with principles of trust law having regard to the scope of the power properly construed.

[3] Relevant to this question will be whether the deed itself explicitly specifies conditions (including procedural conditions) that need to be satisfied for the exercise of the power to be effective [4] . Example 1 of TD 2012/21 explains that the additional of new entities to the class of objects would not result in a CGT event: The Acorn Trust is a family discretionary trust that was settled to benefit the members of the Squirrel Family. Under the terms of the trust deed the trustee (a private company of which Mr and Mrs Squirrel are directors) has the power at its absolute discretion to appoint income to any one or more of the General Beneficiaries. The General Beneficiaries are defined under the terms of the trust deed to be Mr Squirrel, his wife, their children, their grandchildren, and Oak Pty Ltd, a private company through which the family runs a business of growing flowers to supply local florists. Having decided to get out of the flower industry, the Squirrel Family dispose of their interests in Oak Pty Ltd to an unrelated third party.

The trust deed for the Acorn Trust provides for a procedure for the trust to be amended, namely by trustee resolution recorded in writing. Pursuant to this procedure the trustee resolves in writing to amend the deed to specifically remove Oak Pty Ltd by name from the class of General Beneficiaries. The trustee further resolves to add to the class of General Beneficiaries: • the respective spouses of the children; • trusts and companies in which the family has a majority controlling interest; and • a philanthropic charity unrelated to the Squirrel Family. The making of these resolutions, being a valid exercise of a power of amendment contained within the deed, does not give rise to the happening of a CGT event. By declaration or settlement The second element necessary for CGT event E1 to happen is that the creation of the trust is by declaration or settlement. A trust is created by declaration within the meaning of subsection 104-55(1) when it is created by words or conduct sufficient to demonstrate an intention to create an express trust over property. [5]

Transactional documentation that evidences an express intention to hold the transferred assets subject to the terms of the trust deed, may suffice to create a trust over those assets by declaration. A trust is created by settlement when property is vested in a trustee for the benefit of others. [6] A transfer of existing trust property to, and the vesting of this property in, a new trustee for the benefit of others can satisfy the description of the creation of a trust by settlement. [7] Transferring a CGT asset to a trust: CGT event E2 Subsection 104-60(1) provides that CGT event will occur when an asset is transferred to an existing trust. The timing of the event is at the time that the asset is transferred, as provided by subsection 104-60(2). Application to your circumstances Creating a trust over a CGT asset: CGT event E1 In order to determine whether CGT event E1 occurs as a result of your arrangement, it is necessary to consider whether the proposed arrangement will have the effect of creating a trust over a CGT asset by declaration or settlement.

It is proposed that the Trust Deed be amended to expand the class of persons who are General Beneficiaries to include any charity or religious institution which the Trustee declares in writing to be a general beneficiary. This is within the Trustee's power as provided by the Deed and is also similar to Example 1 of TD 2012/21. Consequently, the proposed change will not give rise to the creation of a new trust over the assets of the Trust such that CGT event E1 will not occur. Transferring an asset to a trust: CGT event E2 The proposed arrangement does not involve the transfer of an asset to the Trust. Given this, CGT event E2 will not occur. > [1] Commissioner of Taxation v. David Clark; Commissioner of Taxation v. Helen Clark [2011] FCAFC 5; 2011 ATC 20-236;(2011) 79 ATR 550. [2] Commissioner of Taxation v. Commercial Nominees of Australia Ltd [1999] FCA 1455; 99 ATC 5115; (1999) 43 ATR 42. [3] The scope of the relevant power is determined by the construction of the words of the trust deed, the surrounding context and any relevant admissible evidence. See for example Jenkins v. Ellett

[2007] QSC 154 where the trustee was found not to have the power to vary the trust in the manner contended. Note further that invalid amendments, being of no effect, would not of themselves result in CGT events E1 or E2 happening. [4] For example, in Andtrust v. Andreatta [2015] NSWSC 38, the trust deed granted the trustee power to extend the vesting date of the trust, provided the rule against perpetuities was not infringed. [5] Kafataris v. DC of T (2015) 243 FCR 291 at [26] ( Kafataris ). [6] Taras Nominees Pty Ltd v. FC of T (2015) 228 FCR 418 at [5]; Kafataris at [31]. [7] ibid, paragraphs 36 and 37.