Stamp Duty and Appointment of New Trustees A PAPER BY PAUL ANDERSON JUNE 2009
Stamp Duty and Appointment of New Trustees
Summary The Commissioner has released a Revenue Ruling clarifying the circumstances in which the concession under Section 54(3) of the Duties Act 1997 applies when there is a transfer of property consequent upon the retirement or appointment of a new trustee of a trust.
Who Does This Impact? Any trust contemplating a change of trustee.
What Action Should Be Taken? Section 54(3) is technical in nature. Care should be taken to ensure that all of the conditions of the section are satisďŹ ed.
Contents:
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Legislation
2
Operation of Section
2
Example
3
Revenue Ruling DUT 37
3
Other Clarifications
3
Schemes
4
Evidence
4
Comment
4
Conclusion
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Stamp Duty and Appointment of New Trustees by Paul Anderson
The liability for stamp duty on a transfer of trust property consequent upon an appointment of a new trustee has always been fraught with danger. If handled correctly, the stamp duty payable is nominal. If handled without care, the stamp duty payable is calculated on ad valorem rates based upon the value of the trust property. The Commissioner has just released Revenue Ruling DUT 37 which clarifies the operation of the relevant section 54(3) of the Duties Act 1997 and also removes one anomaly in his past interpretation of the section.
Legislation Section 54(3) of the Duties Act 1997 is in the following terms: Duty of $50 is chargeable in respect of a transfer of dutiable property to a person other than a special trustee as a consequence of the retirement of a trustee or the appointment of a new trustee, if the Chief Commissioner is satisfied that, as the case may be: (a) None of the continuing trustees remaining after the retirement of a trustee is or can become a beneficiary under the trust, and (b) None of the trustees of the trust after the appointment of a new trustee is or can become a beneficiary under the trust, and (c) The transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest or potential beneficial interest of any person.
Section 54(3) is not dissimilar to the preceding legislation i.e. Section 73(2A) of the Stamp Duties Act 1920, which was itself the subject of Revenue Ruling SD118. The section was intended to overcome a scheme for the avoidance of stamp duty. Instead of buying a property owned by a trust and paying the usual ad valorem duty, an entity could arrange for itself to be appointed as trustee and then amend the trust deed to nominate itself as one of the beneficiaries. The final step was to transfer the property to itself as beneficiary without payment of any stamp duty. It could be argued that, in terms of policy, the section still goes too far in that it denies the concession if a continuing trustee is still a beneficiary. This point is dealt with in greater detail below.
Operation of Section A careful reading of section 54(3) would suggest that there is liability for ad valorem duty if a new trustee or a continuing trustee is or can become a beneficiary under the trust. Both Revenue Rulings DUT 37 and SD 118 deal with the issue of whether a trustee ‘could become’ a beneficiary in the following fashion. If the trust deed or a variation provides that the new or continuing trustee is prohibited from being or becoming a beneficiary under the trust and that this prohibition is expressed to be irrevocable, then the requirements of the section are satisfied.
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However, in his previous ruling, the Commissioner took the view that ad valorem duty was also payable if a retiring trustee is or may become a beneficiary of the trust. The 2003 Supreme Court decision of Oates Properties v CSD was routinely cited by officers within the Office of State Revenue in support of the Commissioner’s view. This was the case even though the clear wording of the section was to the contrary.
Example J & B are the trustees of the JB Trust, which owns a factory. The beneficiaries of the trust include J & B. J is in ill health and wishes to resign as trustee and appoint C in his place as new trustee. Prior to J’s resignation, J & B execute an irrevocable Deed that provides that B & C are prohibited from being a beneficiary of the trust. A transfer is executed transferring the factory from J & B to B & C as new trustees. The Commissioner has always accepted that in these circumstances none of the continuing trustees and none of the trustees after the appointment of the new trustee is or can become a beneficiary. However, until the release of this ruling the Commissioner has always taken the view that the transfer was liable for ad valorem stamp duty because the retiring trustee, J, is or can become a beneficiary.
Revenue Ruling DUT 37 The Commissioner now accepts that the prohibition in section 54(3) does not apply to former trustees, so that the concession can still apply even where the retiring trustee is a beneficiary or may become a beneficiary of the trust.
Other Clarifications The ruling also clarifies the following aspects of the Commissioner’s views: •
The section may operate if there is a retirement of a trustee without the appointment of a new trustee, or as a consequence of the appointment of a new trustee being a trustee appointed in substitution for, or in addition to a trustee with or without the simultaneous retirement of an existing trustee.
•
Section 54(3) only applies to a transfer of dutiable property which occurs as a consequence of a change in trustees appointed to administer a pre-existing trust. It does not apply to a transfer of dutiable property to the trustee of a newly created trust.
•
The trust must continue to exist with the transferred property remaining an asset of the trust. For example, the section cannot apply to a transfer of trust property to a beneficiary, effectively bringing the trust to an end.
•
The dutiable property must already be an asset of the pre-existing trust. The onus is on the taxpayer to prove this assertion. The Office of State Avenue will conduct searches and examine data such as Land Tax records to verify whether the dutiable property was held as an asset of the existing trust prior to the change in trustee.
•
The section will not apply to the ‘cloning’ of a trust, even though as a result of the transfer the same property will be held on
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trust for the same beneficiaries. A trust is ‘cloned’ where a new trust deed is executed on the same terms and conditions with the same beneficiaries and possibly the same trustee. The section does not apply because the transfer is between trustees of two different trusts rather than as a consequence of a change in trustee of a pre-existing trust under which the property continues to be held. •
The section can apply to ‘trust splitting’. A trust is split if separate trustees are appointed for part of the trust’s property with the existing trustees remaining as trustees of the remainder of the trust property. All the property remains subject to the trust of the existing trust deed and the section can apply.
Schemes The concession granted by section 54(3) is expressly subject to the proviso set out in sub-section (c). The Commissioner must be satisfied that the transfer is not part of a scheme of the type set out in sub-section (c).
Evidence The Commissioner will require the following evidence to be produced before the concession is granted: •
A complete copy of the trust deed (stamped if applicable) and any amendments or variations (stamped if applicable);
•
Deed of appointment and/or retirement of trustees; and
•
Evidence as to when the property was acquired such as a copy of the stamped front page of the contract or transfer. Where it is not clear that the property was acquired as an asset of the trust, the taxpayer may be required to provide evidence that the trust supplied the purchase money for the acquisition of the property.
If the Commissioner is not satisfied as to all of these issues, then ad valorem duty will be payable.
Comment Section 54(3) still fails to grant a concession in the genuine case where a trustee wishes to resign but a continuing trustee remains as a beneficiary. A good example involving ill health is given above. If J resigns as trustee but B remains a beneficiary, the concession does not apply and ad valorem duty is payable because a continuing trustee is a beneficiary within the meaning of the section. Yet it is difficult to see as a matter of policy why the concession should be denied in these circumstances. Nothing has changed as far as B is concerned. The only way to avoid ad valorem duty is for B to agree to an amendment irrevocably prohibiting him from being a beneficiary.
Conclusion The new ruling removes the anomaly concerning retiring trustees and also clarifies the Commissioner’s views as to how section 54(3) operates. However, there is still a great need for care because the operation of the section is technical in nature. Any error can
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lead to a signiďŹ cant liability for ad valorem duty. There would also still appear to be an anomaly in the operation of the section in genuine cases involving a continuing trustee who wishes to remain a beneďŹ ciary.
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For more information, please contact:
Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au
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