Legal Tip 166: Stamp Duty on Trust formations in NSW

Legal Tip 166: Stamp Duty on Trust formations in NSW


In NSW there is $500 stamp duty levied on a trust that is set up with ‘unidentified property and non-dutiable property’, s 58.
DUTIES ACT 1997 - SECT 58 Establishment of a trust relating to unidentified property and non-dutiable property


‘unidentified property and non-dutiable property’ is basically ‘cash’. This is why trusts are set up with $20 or $10 usually as setting up a trust with dutiable property such as land will result in ad valorem duty – normal duty on a transfer.


Where the deed is executed is important because the $500 is payable if the deed is ‘executed in NSW’. S 58(1). This means where someone in Victoria sets up a trust and either the trustee or the settlor are in NSW then the NSW duty will apply. This could be in addition to Victorian duty also applying.


Can you avoid duty by flying to SA or QLD to sign the deed? Yes possibly because neither of these states impose duty on trust formations. However, the NSW duties Act does have some anti-avoidance provisions, see s 284D.
DUTIES ACT 1997 - SECT 284D Payment of duty avoided as a result of tax avoidance scheme


The duty is payable within 3 months of when the liability arises. S 17
DUTIES ACT 1997 - SECT 17 When must duty be paid?


The liability arises when the deed is first executed, s 12
DUTIES ACT 1997 - SECT 12 When does a liability for duty arise?


It is the trustee that is liable for the duty, s 13
DUTIES ACT 1997 - SECT 13 Who is liable to pay the duty?

 

Yes a deed and company formation firm was peddling a scheme a few years back to form a trust in QLD using their company under a POA (they would act as settlor) and then following that transferring the company back to the interstate parties. I had questions about the trust formation aspects being valid but putting that aside...Needless to say the scheme ended when I suspect OSR NSW looked at it as a scheme deliberately intended to circumvent duty..

But there can be some effective ways to address the problem. eg QLD lawyer acts as settlor BUT if the trustee is say a resident of NSW or the trust property is in NSW.....This raises questions for the QLD lawyer to address !

There are also concerns when a deed is NOT settled for a nominal sum. eg a deed of trust is executed over property and that agreement creates the trust relationship. That can trigger a dutiable transfer of legal / beneficial ownership based on the property market value not the nominal duty. Its akin to transfer duty. Ouch.

The agreement may be a express form of trust establishment. Its so important lawyers act for people with these things. A simple agreement drafted by a simple person could be construed as a trust establishment. I saw an accountant do this thinking it was clever. It wasnt. Then he drafted another document to transfer property back to a spouse when OSR indicated a issue and then OSR wanted two lots of duty. All because he had worries about liquidators claims....The liquidator took the property after that fiasco.

There can also be issues with the inverse. Eg Trust merger may mean a change of owner isnt dutiable in NSW when the legal and beneficial owners become one and the same person (trust law requires they arent the same person). The CPT Custodian decision I believe.

 

I recently looked at a trust deed where this happened. People behind the trust where in NSW, but the settlor was a QLD company and the deed was executed by a different QLD company as agent for a NSW company. The deed was headed - No Duty payable as executed in QLD. It was a few years old so perhaps they have stopped doing this now.

 

It seems you are saying that if my mother who lives in QLD, has a QLD trust ($0 stamp duty) and desires to buy a NSW property with it - she legitimately can avoid paying NSW $500 duty for the privilege?

 

If the deed isn't signed in NSW there will be no duty on it - assuming no anti-avoidance

 

However the qld duties act may contain other provisions. Eg mum dies and the trust appointor changes. Full duty could apply. QLD duties have some nasties that nsw dont. QLD duties act has some traps that impact trust changes

 

Where a trust is signed doesn't effect the jurisdiction of the trust though. Not sure what you mean by the changing of appointor triggering duty, can you cite a section of the duties act to support this view?

 

Interesting post. I'm currently in a dispute over stamp duty with Revenue NSW. A trust has just been vested and I have been told I have to pay stamp duty (non discretionary trust)

 

Depending on the circumstances it could be $50 or full duty

 

What happens if the trustee is in QLD when it's setup then but later moves to NSW? Maybe a few months or few years later?

Can QLD trusts only buy QLD property or if they buy one in another state then duty will become due in that state?

 

It doesn't matter which state the trustee is located in, other than at the settlement of the trust - the signing point as this is when duty is triggered in NSW or VIC.

Just because a party to a trust is located in state A doesn't mean the trust is an A state trust. The governing law of the trust is usually governed in the trust deed, if not the Hague Convention will apply to determine jurisdiction.

Subsequent duty will depend on where the dutiable property is located. e.g. a 'QLD trust' with property held in NSW, a change of trustee will be assessed under NSW duty laws, not QLD.

 

Yep its a transfer. Depending how vesting is done. There may have been a way to not vest but it acts to vest the trust and its not dutiable in some cases.

 

The word settle is a general trigger for duty on a trust instrument that is settled. It depends where the deed is settled.The trustee can be a QLD reg company with a QLD Reg Office but a sole Director signs in Melbourne. But the deed is settled in QLD. An understanding of what triggers duties in each state is important. QLD has a harsh set of rules for example that impose duties on some changes to a deed or parties to a deed. A transfer of property occurs in the state where the land is located as its a change to title that occurs to that land, in that state. You cant argue that a transfer occurred in the USA as thats where the $$$ came from and where documents are signed.

A change of trustee address wont generally trigger duty. A change of trustee may or may not.

 

Suppose Jack's permanent address is in NSW-- he goes to QLD for a temporary work, and initiates (i.e., settles) two trusts, called 'Trading Trust', and 'Share Trust'. No stamp duty is paid for either trust (for simplicity let us assume no corporate trustee-- Jack is the only trustee for both). After the trust is settled, and Jack's temporary work is finished, Jack comes back to NSW.

After two years, i.e., in year 2022:
--------------------
Jack still lives in NSW, and he is still the trustee for both trusts, and the postal addresses for both trusts are in NSW.

(a) 'Trading trust' is for consulting work in electricity -- depending on the client for this business, the work can be executed in different states-- so although the 'Trading Trust's address is in NSW, work is done in many states. Should "Trading Trust" still follow QLD jurisdiction? Or does it need to follow NSW law for subsequent duties because the 'trading trust's address is located in NSW?

(b): 'Share trust' holds only shares available on Australian Stock Exchange. Should this trust still follow QLD law for subsequent duties since it was originally settled in QLD? Thanks..

 

Jack might be confusing stamp duty and jurisdiction. Duty is a tax on the formation, jurisdiction is which laws apply to the trust and these are 2 separate things.

Duty is on where the trust declared. Jurisdiction will depend on either where the deed specifies or generally the location of the trustee - see the Hague Convention.

 

Thanks a lot, Terry. I am going through the doc that discusses Hague Convention

 

I saw a case maybe 5 years back where trusts were being formed in QLD under a power of attorney. NSW OSR said it was a sham and went gunning for the company formation firm and its clients.

I would think if Jack is a human trustee and is present in NSW the deed when settled may well be liable to NSW duty. Without a NSW OSR ruling that refutes this I would assume that basis. QLD or NSW legal advice is best obtained. First point of call for that advice would be concerning the state Jack is in.

If its a disc trust this is normally settled based upon a event prescribed by deed eg a settlement sum etc. Addition of further assets through trust monies isnt normally a trust settlement subject to duty as moneys may be loaned or gifted and then used to acquire other trust assets eg shares, BUT if further assets eg QLD property were to be subject to trust declaration yes a further dutiable transfer could occur. In QLD rather than NSW. Not shares. Subsequent duties are generally limited to purchase transfer duty only BUT can occur for some trust events such as changed unitholdings for a property trust in QLD or alterations to some trusts as an example.

 

You would have to consider the anti-avoidance provisions. The NSW Duties act states duty is payable if any party executed in NSW so a trustee could just drive over the border to QLD (assuming no lock down) to sign it. But this the anti-avoidance provisions may capture this..

But you also have to consider bank requirements. If they see a NSW address on the deed with no stamping, they may refuse to lend to the trustee until the deed is stamped

 

Or the deed is also unsigned..... Taxpayer setup own trust and then found he couldnt get his loan settled at the last hurdle as the copy of the deed was unsigned. Didnt want to use a lawyer to set it up, didnt pay the duty and didnt have the deed signed and the bank wouldnt accept it being signed fresh. So didnt want to pay to fix it and hoped I could help. No way. Sent him to a solicitor and the solictor noted that the settlor was him, trustee was him....He needed a whole new trust setup as his "trust" wasnt.