Real life examples of problematic variation clauses

A Matter of Trusts

Taxation in Australia

There are a number of reasons why the trust instrument of a discretionary trust might need to be amended. These include, but are not limited to, succession planning, tax planning and/or the general modernisation of the provisions of a trust deed to account for changes in trust and tax laws.
A common reason for varying a discretionary trust deed is to bring the deed in line with the High Court decision in FCT v Bamford (Bamford),1 which clarified the ability to define income for the purpose of the trust, and the introduction of the trust streaming provisions into the Income Tax Assessment Act 1997 (Cth) (ITAA97).2 Consequently, discretionary trust deeds are often amended to provide for the streaming of income and the power of the trustee to separately categorise income and capital. This article examines examples of variation clauses and whether or not a variation to categorise and stream income and capital can be validly made.
It is important to remember that the variation clause, and the trustee’s powers more generally, should not be looked at in isolation. Therefore, variation clauses (like all clauses) should be read in the context  of the trust deed as a whole.

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