Changing a Trust without triggering a CGT payment

When changing a trust deed, it is important to consider whether the change will give rise to any capital gains tax (CGT) implications for income tax purposes.

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In particular, you should be careful that when changing the deed you do not inadvertently cause the existing trust to come to an end and to be replaced by a new trust (referred to as a "resettlement"). Problems arise because a resettlement causes a disposal and re-acquisition of the trust property. And CGT may apply.

The question of whether a change of a trust deed results in a resettlement for income tax purposes is a question of fact and degree. However, the Australian Taxation Office has issued a Statement of Principles in this regard setting out the circumstances in which it considers that there will be a resettlement of a trust.

For example, the following variations are considered sufficiently fundamental to cause a resettlement:

• redefining a group of beneficiaries, asdistinct from changing the membership of an existing group; and
• fundamental changes to the terms of atrust. For example, converting a discretionary trust to a unit trust.

These changes are distinguished from purely procedural changes such as a change of trustee.