Whether varying the terms of a trust will trigger a capital gains tax (“CGT”) liability is the subject of a recent ATO ruling (Taxation Determination TD 2012/21 – issued on 24 October 2012).   TD 2012/21 is the ATO’s final ruling on this topic  – a draft (TD 2012/D4) was issued earlier this year, and discussed in my post of 8 July 2012.

The final ruling is (even) more favourable than the draft.  The draft ruling stated, in effect, that a variation to the terms of a trust would generally* not trigger a CGT liability provided the variation was made pursuant to a valid exercise of a power contained in the trust deed.  The final ruling confirms the statements in the draft, but also extends the “relief” to variations that are made by court order.  (This could be relevant where, eg, a trust deed does not permit the trustee to make a desired variation, but, following a successful application to the Supreme Court, the court orders the variation.)

*CGT could apply if, eg, the variation causes a particular asset of the trust to be held subject to a new charter of rights and obligations.