Stamp duty exemption - transfer from discretionary trust to beneficiary

Ordinarily, land transfer duty (stamp duty) is paid by the transferee at the time of the transfer of dutiable property, such as real property, unless an exemption to stamp duty is applicable.   

In this article, we will summarise the exemption to duty afforded by section 36A of the Duties Act 2000 (Act), which arises when a trustee of a discretionary trust transfers property to a beneficiary of that trust as an in specie distribution.

When assessing the eligibility for this exemption to stamp duty, the State Revenue Office (SRO) must be satisfied of the following requirements;

• the duty (if any) was paid on the acquisition of the property by the trust;

• the beneficiary was a beneficiary of the trust at the time the trust acquired the property (exemptions apply to spouses, children etc);

• the transfer of the property is to the beneficiary absolutely; and

• no consideration was paid for the transfer.

Consideration

While parties to a transfer may expect that consideration only includes money paid in relation to the transfer of the real property, the State Revenue Office (SRO) takes a wider view of consideration.  An example of this is that the SRO may deem there to be consideration if there are loans or unpaid present entitlements (UPEs) between the trust and a beneficiary that are or may be forgiven as a result of the transfer. If this were to occur, the SRO may deem the forgiveness of the debt as consideration. This would result in the duty exemption not be applied to the transfer.

Additionally, if the property is subject to a mortgage in the name of the trustee, and a new mortgage is registered on title in the name of the beneficiary, securing an amount less than the loan to the trustee at the time immediately before the transfer, the SRO may determine that as consideration, and again, the exemption to duty will not be applied to the transfer.

Evidentiary Requirements

It is important that the parties are aware of their obligations and evidentiary requirements when applying for this exemption to stamp duty. The required evidence includes:

• A copy of the stamped discretionary trust deed (with copies all amending deeds);

• Copies of the most recent financial statements of the trust;

• Various property searches; and

• A statutory declaration by the trustee.

Trust Deed

Fundamentally, the trustee must be afforded the power by the trust deed to make an in specie distributions of property to beneficiaries. If the relevant powers are not included in the trust deed, and the trust deed includes appropriate amendments provisions, the deed may be varied to include a power to make in specie capital distributions of real property.

In our review of the matter, we will consider the evidence available, the power and provisions of the trust deed, and advise on the likelihood of obtaining the relevant exemption to duty.

Tax Consequences

It is important to note that transfer of property to beneficiary of a discretionary trust will trigger a capital gains tax (CGT) event and CGT will be payable on the distribution unless an exemption or concession to CGT applies.  It is vital that the client seeks the appropriate legal and tax advice to confirm the CGT position before any distribution is actioned.

Final Point

Transferring dutiable property to a beneficiary of a discretionary trust has significant legal and tax ramifications if not carried out properly. If you require assistance or wish to obtain further information in relation to the distribution of property from trust, please contact:

Alasdair Woodford
Principal Lawyer
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Associate
T: 03 5226 8504
E: jflanagan@ha.legal

Ben Smith
Graduate Lawyer
T: 03 5225 5262
E: bsmith@ha.legal