Section 54(3) of the Duties Act (NSW) 1997 is a trap for the unwary in circumstances when the trustee of a trust is changed and there is “dutiable property” under s11, such as land or shares in a NSW company etc, to be transferred from the old trustee to the new trustee.
s54(3) provides that duty of $50 is chargeable in respect of a transfer of dutiable property to a person other than a licensed trustee company, a special trustee or trustee of a special disability trust as a consequence of the retirement of a trustee or the appointment of a new trustee, if the Chief Commissioner is satisfied that:
(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 beneficiary or otherwise, to the detriment of the beneficial interest of any person.
If the Commissioner is not so satisfied, the transfer is chargeable with the same duty as a transfer to a beneficiary.
In summary if any of the above 3 requirements are not met, then full duty at ad valorem rates is payable.
s11 defines dutiable property as including, land in NSW, shares in a NSW company (but excluding shares quoted on the ASX), units in a unit trust scheme, a business asset such as the goodwill of a business or intellectual property, a partnership interest etc.
This is always an issue where there is a non-corporate trustee and the persons who are trustees are (as is usually the case) also beneficiaries or where the trust deed does not provide that the trustee cannot be a beneficiary.
Examples
Mr and Mrs Smith are trustees and beneficiaries of the Smith Family Trust, a discretionary trust that owns a strata unit in Bondi valued at $950,000.
Mr & Mrs Smith have 3 children, all of whom are also beneficiaries of the family trust. Mr Smith dies.
If Mrs Smith decides to carry on as the sole trustee of the trust the problem is that she is a continuing trustee and s54(3)(a) applies. Therefore stamp duty will be
payable on the market value of the unit when the unit is transferred into her name as the sole trustee. ie. $38,240.00 (as at March 2012).
If Mrs Smith decides instead that her eldest son should become trustee with her in place of his father, the problem is now twofold in that Mrs Smith is a continuing trustee and s54(3)(a) applies and her son is a beneficiary of the trust and s54(3)(b) also applies. Again stamp duty will be payable on the market value of the unit when it is transferred to Mrs Smith and her son as the new trustees.
What can be done to avoid this expensive and unnecessary stamp duty?
The solution is to appoint a company controlled by Mrs Smith and/or Mrs Smith and her son (if that is desired) to be the new trustee in place of both the deceased Mr Smith and Mrs Smith. Provided the company is not and cannot be a beneficiary of the trust and this is embedded in the trust deed, then the stamp duty is only $50 when the unit is transferred to the company as the new trustee.
Note this is now not an issue for a Self Managed Super Fund (“SMSF”)
Under the State Revenue Legislation Further Amendment Act 2010 a SMSF is from 1 July 2010 (backdated) a special trustee for the purposes of s54(1) by virtue of s42A of the Superannuation Industry (Supervision) Act 1993 (“SIS Act”).
Section 54(2) provides that stamp duty of $50 applies on the transfer of dutiable property to a special trustee on the retirement of a trustee or the appointment of a new trustee.
This applies even though there is a continuing trustee who is or could be a beneficiary or the new trustee is or may become a beneficiary ie. s54(3) does not apply to a special trustee.
What does this all mean for me?
If you are establishing a trust then for many reasons including this stamp duty issue you should register a company to act as trustee. Further the trust deed should provide that the trustee cannot be a beneficiary and further that this provision cannot be amended.
If you already have trust then do not take any steps to change the trustee without obtaining legal advice from a solicitor experienced in trust law matters.