Tightening of requirements to have transfers of real property pursuant to a change of trustee assessed at $50
Fred and Wilma are the trustees of the Flintstone Unit Trust which own a commercial premises in NSW and supplies building materials to its clients. Fred and Wilma decide to retire and wish to sell their business to a third party. Following the sale and appointment of a new trustee, Fred and Wilma need to arrange to transfer title of the property to the current trustee. What kind of stamp duty is payable on this transfer?
A transfer of property from one entity to another attracts full (or ad valorem) stamp duty. However, the Duties Act 1997 (NSW) (“Act”) sets out a number of circumstances where a concessional or nominal amount is payable.
One example is section 54 of Act, which states that $50 stamp duty is payable as a result of a change of trustee of a trust. This section deals with different types of trusts including SMSFs, discretionary trusts, unit trusts.
Before a party is entitled to $50 stamp duty on the transfer, certain requirements must be met to the Chief Commissioner's satisfaction (s54(3)). These are:
1. none of the continuing trustees of the trust are or can be beneficiaries of the trust;
2. no new trustees are or can be beneficiaries of the trust;
3. the transfer is not part of a scheme to avoid duty that involves conferring the interest in the dutiable trust property on a new trustee or other person (whether or not as a beneficiary) so as to cause any person to cease holding the whole or any part of a beneficial (or potential) interest in that property.
In order to prevent any continuing or new trustees from becoming beneficiaries of the trust, the trust deed needs to have an irrevocable clause to that effect. In our example, Fred and Wilma are the retiring trustees, there are no continuing trustees, so provided the new company is not a beneficiary of the trust and the trust deed contains the relevant rule in the trust deed, this requirement is likely to be met.
Recent legislation changes this year have amended section 54 to make it clear when this section can be relied on. The section expressly applies to the transfer of "dutiable trust property" (previously, the section referred to just "dutiable property"). In other words, Fred and Wilma's property must be a pre-existing asset of the Flintstone Unit Trust. Provided the asset is already held by the existing trust then the definition of dutiable trust property will be met.
The other main change to the legislation is that the parties have to prove the transfer is not part of a scheme to avoid duty that involves conferring the interest in the dutiable trust property on a new trustee, or other person, to cease holding the whole or any part of a beneficial (or potential) interest in that property.
With the redemption of units in a unit trust and the issue of new units (along with the change of trustee) the interest in the dutiable trust property will change to the parties who are the new unit holders. Whilst the redemption and issue of units may be necessary for a commercial transaction, the parties may have to submit evidence to satisfy the Chief Commissioner that the transfer is not part of a scheme to avoid duty.
As this is a recent legislation change, the Chief Commissioner has yet to release an updated revenue ruling on this requirement and it is uncertain as to what documents a party would need to submit to prove that the transfer is not part of a scheme to avoid duty. Should the Chief Commissioner take the view that such commercial transactions fall outside s54(3) of the Act, there is the potential for full stamp duty to be paid on such transfers.
If you would like assistance with the transfer of property following a change of trustee of a trust, please contact Townsends Business & Corporate Lawyers on 02 8296 6222.