Public advice and guidance compendium

The draft Determination does not provide any meaningful precedential ATO view.

The explanation of the Commissioner's view has been expanded upon in the final Determination. Example 2 has also been included to provide a scenario where some degree of functional separation of parts of a trust is achieved without creation of a new trust.

The Commissioner welcomes suggestions of ways in which further guidance might be given to assist in distinguishing between arrangements that cause a new trust to arise and those that do not.

The scenarios discussed in the Determination are distinguishable from a situation where all that has occurred is a new trustee is appointed and that new trustee exercises discretions in a different manner to that of the previous trustee (although, presumably, still consistently with the purpose for which the discretion exists).

Example 2 has been included in the final Determination to demonstrate an arrangement where the Commissioner concludes that assets have not been settled on a new trust.

Taxpayers whose circumstances differ materially from the examples in the final Determination can approach the Commissioner for advice on their specific circumstances.

Further guidance should be provided in the final Determination as to what features are most important, or what weight should be given to particular features.

It is the arrangement as a whole which leads to the conclusion that assets have been settled on a new trust in the circumstances considered in the Determination. It is not possible to rank specific factors and combinations of factors which might in individual cases demand this conclusion. The outcome in any particular case will depend on the precise circumstances of that case.

The Commissioner welcomes suggestions of ways in which further guidance might be given to assist in distinguishing between arrangements that cause a new trust to arise and those that do not.

Taxpayers whose circumstances differ materially from those discussed in the final Determination can approach the Commissioner for advice on their specific circumstances.

The Commissioner accepts that the conclusion as to how the tax law applies to any particular arrangement requires a careful examination of the facts specific to that arrangement.

Many trust split arrangements operate with collaboration between the trustees such that a yearly set of accounts and a single tax return is prepared. The final Determination should include an example where a new trustee is appointed, practical control was delegated / transferred though an overarching control was retained, and a CGT event does not arise.

The final Determination should confirm the taxpayer who is liable to tax arising as a result of the trust split on the Commissioner's view.

Taxpayers whose circumstances differ materially from those discussed in the final Determination can approach the Commissioner for advice on their specific circumstances.

The draft Determination does not discuss the use of trustees holding assets through a bare trust for the original trustee.

The Determination needs to consider the situation where a trust has multiple trustees for practical reasons (for example, when assets are held in different jurisdictions, or when particular assets have a risk profile that needs to be mitigated).

Taxpayers whose circumstances differ materially from those discussed in the final Determination can approach the Commissioner for advice on their specific circumstances.

Taxpayers whose circumstances differ materially from those discussed in the final Determination can approach the Commissioner for advice on their specific circumstances.

Example 2 has been inserted in the final Determination to consider an arrangement which the Commissioner concludes does not cause a CGT event to occur.

Taxpayers whose circumstances differ materially from those discussed in the final Determination can approach the Commissioner for advice on their specific circumstances.

For the arrangement set out in paragraphs 1 and 2 of the final Determination, the Commissioner concludes that CGT event E1 is the most specific to the situation. Consideration of other CGT events is therefore unnecessary in that context.

The conclusion reached in Example 1 of the draft Determination is incorrect. There is not a 'declaration or settlement' at the time of the appointment of the new trustee (Moon Trustee) since the trust property (the 100 Sun Pty Ltd shares) is held on a trust that pre-exists the date of appointment of the new trustee. Thus, CGT event E1 cannot happen as there has not been the creation of 'a trust over a CGT asset by declaration or settlement' at the time the new trustee is appointed. Rather, the creation of a trust occurred 'over a CGT asset' at the time the initial trustee (Star Trustee) acquired the 300 Sun Pty Ltd shares.

However, further explanation for the Commissioner's views has been added to the final Determination. This includes a discussion of the decision of the Supreme Court of South Australia in Dyda P/L & Anor v Commissioner of State Taxation [2013] SASC 156 (Dyda) which, although decided in a different statutory context, provides a useful case study for present purposes.

Paragraph 27 of the draft Determination draws the conclusion that there are two distinct trust funds. That is obviously so but is also irrelevant. Conflating a trust fund, or more accurately for tax purposes a trust estate, with a trust, borders on treating a trust as an entity by the implicit conclusion the existence of two trust funds must mean a new trust has been created.

Example 2 has been included in the final Determination to consider an arrangement which we conclude does not cause a CGT event to occur.

Further detail has been added to Appendix 1 in the final Determination of the basis for the Commissioner's conclusion that a trust split of the type described in the final Determination causes CGT event E1 to happen.

The wording of paragraph 52 has been revised in the final Determination (paragraph 31 of the draft Determination) to better reflect this point.

The draft Determination is based on an assumed 'expectation' of how a court is likely to handle a trust splitting case.

If a court were to uphold a challenge to the exercise of a trustee's discretion, it would not be because it was inconsistent with the subjective intentions of the parties; it could only be that the powers had been exercised beyond the scope of the trust deed, for example, to confer a benefit on a non-beneficiary, or that the trustee had failed in its duty to give due consideration to the beneficiaries. See Karger v Paul [1984] VR 161 at [175] as to the duty of real and genuine consideration.

Footnote 28 to paragraph 52 and footnote 29 to paragraph 53 of the final Determination (footnote 20 to paragraph 31 and footnote 21 to paragraph 32 of the draft Determination) have been adjusted to correct minor referencing errors.

See also the response to Issue number 26 of this compendium.

The conclusions in paragraph 33 of the draft Determination do not follow; the purpose for which the trust is established may be summarised as enabling the trustee for the time being to exercise its discretion as to which beneficiaries are to benefit and to what degree.

The fact that after taking into account the matters that the original and separate trustees are entitled or obliged to, those trustees may come to different decisions does not mean that the powers and discretions have different purposes. The purposes remain the same; the implementation of those purposes is what differs.

The content of this footnote (now footnote 30 to paragraph 53) has been revised in the final Determination.

Appendix 1 has been expanded in the final Determination to explain the basis of the Commissioner's view in more detail.

A break in the continuum of the trust will constitute a resettlement. However, no break in the continuum of the trust does not mean that there is no resettlement of the property.

The South Australian Supreme Court case of Dyda provides an example of a situation where a new trust was held to arise. The Court did not consider Commercial Nominees to be inconsistent with this conclusion.

The final Determination has expanded the explanation of the Commissioner's view, including analysis of the Supreme Court of South Australia's decision in Dyda at paragraphs 40 to 44.

It is only the private ruling that is provided to the taxpayer (from which the edited version is created) that is binding on the Commissioner, and only for the taxpayer to whom it applies.

Retrospectivity undermines public confidence in the administration of the Australian tax system.

It is irresponsible for the final Determination to apply on a retrospective basis given that there have been private rulings issued in which it is concluded similar arrangements do not trigger CGT events.

We do not consider that the private rulings issued on this topic constitute a general administrative practice on such arrangements.

However, it is recognised that the Commissioner's view of the potential CGT implications of the arrangement discussed in this Determination may have been subject to conjecture prior to the publication of the draft Determination on 11 July 2018. The Commissioner will not devote compliance resources to apply the view expressed in the final Determination to arrangements entered into before this date.