20/06/2022

Amendments made last month to the NSW Duties Act could cause material headaches to super funds holding real estate in NSW.

The only remedy for those headaches is good compliance documentation.

If you’re interested, the legislation was called the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (NSW).

Under the Act, ‘ad valorem’ duty (ie duty based on the full value – like what you pay on your property purchase) will be levied on the making of a statement that has the effect of acknowledging that property vested, or to be vested, in the person making the statement, is held, or is to be held, in trust for a person mentioned in the statement.

I can hear you yawning but you need to stay with me if your SMSF owns property in NSW.

The now-commercialised and hellishly expensive land titles registration service in NSW responsible for administering the land titles register has the same policy as its public predecessor in refusing to register a trust on the land titles register.

If your SMSF owns real estate the title only shows the name of the trustee of the SMSF not the fund itself.  What happens if it becomes necessary to prove to a third party (bank, ATO, family court, creditor etc) that the trustee is in fact holding the property on trust for the fund?

Previously when asked to assist with this issue we’ve suggested an Acknowledgement of Trust – a document which created no new legal or equitable rights but simply acknowledged an existing trust. This now seems to be dutiable in NSW, with the person making the statement liable to pay duty on the dutiable value of the property.

This legislative change follows decisions like Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] where the Court of Appeal unanimously held that a document which does not effect a transaction, but merely acknowledges an existing legal position, is not liable to duty under the Act.

It is not yet clear how these provisions will affect various legal documents in practice, however given the various acknowledgements of existing trusts in many legal documents it has the potential to be a minefield.

So how do you now prove that the registered proprietor of the land is holding that land on trust for the SMSF?

Have the necessary compliance documents:

• resolutions of the fund trustee
• resolutions of the fund members
• bank statements showing that all the purchase money came from the fund

And of course keep all the records of the transaction like contracts, correspondence, legal files, duty payments etc

Oh, by the way, the same applies to your Family Trust.

We can help.

For further information, please contact Townsends Business & Corporate Lawyers on 02 8296 6222 or email info@townsendslaw.com.au.