How to Stop Losing Thousands of Dollars in Ten Easy Steps
As an Accredited Business Law Specialist, Leigh Adams Commercial Lawyers are well versed in helping clients avoid the common stamp duty traps in business contracts. Here are ten of them:
Your business trust deed is lost
This can be disastrous if you need to change the trustee, add or change beneficiaries, or if you want to deal with the trust in any way, including if you want to sell some or all of its assets (or its business), or if you want to use it to buy other assets or another business. However, you may have options, as we discuss below.
But you have found a copy of the stamped trust deed
This is the best result – you can stamp the replica for $10 under s272 of the Duties Act 1997 (NSW) and all is well.
You can only find an unstamped unsigned copy of the trust deed
This is not too bad – you will need to lodge the trust deed together with a statutory declaration evidencing the assets in the trust (the “settlement sum”) at the time the trust was declared, in order to remedy the situation. The duty is likely to be $500 with a $500 penalty.
If the original signed trust deed cannot be found but a photocopy of the trust deed is found, then the current practice at the Office of State Revenue is to stamp the photocopy under s299 of the Duties Act 1997 (NSW).
Will you sign the unstamped unsigned copy of the Trust Deed?
If the parties (that is, the settlor and the trustee) now sign the trust deed, then ad valorem stamp duty is likely to be triggered. Not a good idea.
No copy of the trust deed can be found
You have two safe options: Firstly you could continue to operate the trust within the limited powers granted to trustees under the Trustee Act 1925, or you could apply to the Supreme Court (under section 81 of the Trustee Act which provides for such an application) for an order that a new restated trust deed be adopted.
Other options include having all the beneficiaries agree to vary the rules of the trust to incorporate a new written trust deed. For this to work, you will need to identify all the beneficiaries in the trust. For a discretionary trust, that might be difficult. You also need to obtain their consent. Additionally, all the beneficiaries of the trust must be “sui juris” and “absolutely entitled” to their share of the trust fund.
Another option is for the trustee and settlor to execute a restatement deed. Despite Clarke’s case [2011] FCAFC 5, this is still considered highly problematic because you will need to prove that the terms of the now restated trust deed are the same as those which applied in the last trust deed, failing which ad valorem duty will apply because the new written trust deed could be considered a resettlement; the result in Clarke’s case depended on the variation to the trust being in accordance with the variation power in the trust deed. Where the trust deed is lost, it is impossible to prove that this is the case.
Another problem as regards pursuing a restatement deed is that it has been held that an acknowledgement of a pre-existing trust can itself constitute a declaration of trust that triggers stamp duty, despite the fact that the acknowledgement does not create any trust interests: Crowther v CSD (NSW) [1978] 1 NSWLR 82.
Changing the Trustee of your Trading Trust
When a trustee is changed in NSW you must ensure that the trust deed does not allow any continuing or new trustee to be a beneficiary of the trust, failing which s54 of the Duties Act 1997 NSW will apply ad valorem duty to the deed of change of trustee.
Moreover, the amendment clause under the Deed of Amendment of Trust (if that is what is needed to ensure no continuing or new trustee can be a beneficiary of the trust) must be to the effect that it is, itself, unable to be changed.
The Apparent Purchaser Provisions
Many clients, for whatever reason, like to provide the whole of the purchase money for the purchase of real estate, but do not want their name to appear in the title.
In such circumstances, the way to proceed is for a declaration of trust to be prepared. It recites that the beneficiary (who is the real purchaser) has contributed all of the purchase moneys and that the purchaser (the “apparent purchaser”) holds the property on trust for the beneficiary.
In such circumstances, Section 55 of the Duties Act 1997 NSW applies nominal duty ($50) on the transfer from the apparent purchaser to the real purchaser. However you need to be able to clearly demonstrate that the real purchaser has provided all the purchase moneys, including the deposit. The evidence is usually by way of a statutory declaration annexing copies of bank statements and other evidence. ‘DUT 30’ (being the relevant stamp duty ruling) sets out the additional evidence required. It is over 2000 words in length. It also comments on how loans are to be dealt with in order to obtain the stamp duty concession.
Transferring Business Real Property into Super
Section 62A of the Superannuation Industry (Supervision) Act 1993 can apply concessional stamp duty when dutiable property is transferred into a self managed superannuation fund.
It can apply where the super fund is buying the property and whether or not money has to be borrowed for the acquisition. It can also apply to straight out transfers.
Section 62A is technical and requires that if one member is the transferor but there are two or more members of the fund, then the dutiable property must be “segregated”. In most cases, the need for segregation means that the self managed superannuation fund trust deed has to be amended before the transfer or sale takes place.
To get the concession, you also have to ensure that the self managed superannuation fund continues to be a complying fund after the transfer or sale has occurred. This means ensuring that the property is caught by s 66 of the Superannuation Industry (Supervision) Act 1993 (which defines business real property). That can be complicated. Taking short cuts often result in full ad valorem duty applying.
Borrowing money to acquire business real property within a superannuation fund
Section 62B of the Superannuation Industry (Supervision) Act 1993 is relevant here. So is
Section 66 of the Superannuation Industry (Supervision) Act 1993.
Section 66 states that the asset must be acquired at market value, but s 62B only refers to transfers. It is therefore important to examine the relevant rulings (including SMSFR 2010/1) to determine how a transfer may be made where full consideration is not actually paid by the self managed superannuation fund.
The stamp duty concession can apply to a range of circumstances. An example is Regulation 13.22C of the Superannuation Industry (Supervision) Regulations 1994 which states broadly that where a fund member owns shares in a company which itself owns real property (it does not have to be business real property), then those shares can be transferred into the self managed superannuation fund. If the land-holding is valued at less than $2 million, then a stamp duty saving of over $75,000 can be obtained in New South Wales.
And what happens when the bare trustee transfers the property to your self-managed superannuation fund?
Most investors want to transfer the property from the bare trustee to their self managed superannuation fund as soon as possible. Get rid of the complicated business structure!
But duty can be imposed on this transfer. Nevertheless, providing the self managed superannuation fund is “absolutely entitled” to the property under the bare trust deed, the duty should only be $50.
However, sometimes it is wise to retain the property in the bare trust structure to limit land-holder risk, which can include negligence claims against owners for faulty wiring causing a fatal electrocution. That was the conclusion of the Court in Giovenco v Dick (2010) NSW DC4. Such a claims can wipe out a superannuation fund.
Call Owen Hodge Commercial Lawyers for further details on how to avoid the business stamp duty trap. We work with other professionals including bankers, financial planners and accountants to get you the concessions that are available for your business contracts and transactions.
Here at Owen Hodge Lawyers we are always striving to deliver the legal advice and guidance you need. Read our recent post about the validity of unsigned contracts and more on the Owen Hodge blog today!