On 6 September 2011, the High Court refused the Commissioner's application for special leave to appeal the decision of the Full Federal Court in FCT v Clark and Anor [2011] FCAFC 5 (Clark). As a result, the Commissioner withdrew its 'Creation of a new trust – Statement of Principles August 2001' (Statement of Principles) on 20 April 2012.
Where to from here? Substratum of the trust
Importantly, the withdrawal of the Statement of Principles is not the end of the resettlement issue. The underlying resettlement principle must be considered with any variation.
Irrespective of the Commissioner's view in the Statement of Principles, resettlement cases have focussed on the concept of a trust having a substratum. In Re Ball's Settlement [1968] 1 WLR 899, Megarry VC noted:
'If an arrangement changes the whole substratum of the trust, then it may well be that it cannot be regarded as merely varying the trust.'
In Lock v Westpac Banking Corporation [1991] 25 NSWLR 593, the Court confirmed the substratum is determined as a matter of construction of the deed, having regard to the surrounding circumstances.
In FCT v Commercial Nominees of Australia Ltd [2001] HCA 33 (Commercial Nominees), and again in Clark, the Courts confirmed continuity needs to be considered in the circumstances of the fund. In Commercial Nominees, the Court noted that a superannuation fund, by its nature, is expected to undergo change. In Clark, Dowsett J noted that the unit trust in question did contemplate the possibility of change.
These cases indicate that provided a change is made pursuant to a power under the trust deed, and the changes do not go outside the purpose of the trust, they should not result in a resettlement.
Where a trust has a specific purpose, caution should be exercised. In the meantime, contact us if you require information regarding trust deed amendments, including review and amendments of trust deeds to deal with the definition and determination of income.
Further guidance from the Commissioner?
The Commissioner has confirmed the Statement of Principles will not be replaced, with the Commissioner instead to release a Taxation Determination (TD) focussing on CGT event E1 (creating a trust over CGT assets). It is likely this TD will provide examples of amendments that do not trigger CGT event E1.
For the time being, it is a case of watch this space, and we will provide a further update once the TD is released.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
