Restructuring v Continuity of Trust

Restructuring v Continuity of Trust

Restructuring v Continuity of Trust

What happens when a trust or superannuation fund undergoes changes? Does this give rise to a new structure or trust? What sort of changes are we talking about? Two cases when examined jointly will show that the law remains unclear due to the contradiction between the two rulings.

The decision of the Federal Court in Commissioner of Taxation v Clark [2011] FCAFC 5 (Clark) held that changes to the circumstances of a trust can result in new trust estate. This can have considerable tax implications on the trustee and beneficiaries of the trust.

How? For instance, disposing of assets and interests in the original trust can lead to subsequent corresponding income tax and stamp duty implications. A previous High Court decision in Federal Commissioner of Taxation v Commercial Nominees of Australia Limited [2001] HCA 33 (Commercial Nominees), is authority for determining whether changes to a trust cause the creation of a new "eligible entity" for income tax purposes.

What happened in Commercial Nominees? The regulated superannuation fund witnessed distinct alterations, such as, modifications to the classes of membership and nature of benefits.

In contrast, let us briefly examine Clark. Although changes took place, such as, a change to the trustee, members, indemnity and liability arrangements of the trust, to name a few, the majority did not consider a drift or discontinuity in the trust estate' in principle. Further, without statutory authorities, it was safe to find a sufficient connection in distinctiveness between the trust incurring capital losses and gains. The ATO and Dowsett J in the minority, however, were not at peace with this reasoning.

The regulated superannuation fund witnessed distinct alterations, such as, modifications to the classes of membership and nature of benefits.

As you can see, presently, Clark and Commercial Nominees are in some contradiction. The Commissioner of Taxation's perspective may be appealed to the High Court. It is prudent to consult with your professional advisors progress in this area will serve to determine how your trust resettlement will affect your tax implications. Needless to say, professional advisors, trustees and beneficiaries alike, would be keen to see which authority should be followed one which creates a new trust?

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