Saving on Stamp Duty
Careful investors can avoid ad valorum (full) stamp duty rates in certain cases if they make smart choices regarding their assets. The Australian government provides concessions for stamp duty rates applying to the transfer of dutiable assets if certain conditions are met. Where concessions do not apply, a single transfer of property will attract full ad valorum stamp duty.
In this newsletter, we will discuss the avenues available to you to save money when transferring properties between trusts.
What Is Dutiable Property?
The definition is quite vast, but for most people this would include the transfer of land, business assets, unit trusts or shares.
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Paying Nominal Rates Upon Change Of Trustee
When setting up a trust, an important thing to consider is what will occur upon the death, retirement or removal of a trustee.
S.54(3) of the Duties Act allows for a nominal stamp duty of $50 when transferring dutiable trust property to a person, where the Chief commissioner is satisfied that none of the trustees after the retirement or appointment of a trustee can become beneficiaries. Thus, were the trustee is not a company, or could also be a beneficiary, a trust asset could risk attracting full stamp duty rates.
The Reason To Be Careful
Section 54 excludes nominal rates simply where the Chief Commissioner finds that there is a chance that a trustee can become a beneficiary (s 54(3)(a) and (b)). If we were to examine this in relation to a family trust, for example, where parents act as trustees for their children, the death of one parent could attract full stamp duty rates. This is because the remaining parent as a continuing sole trustee could also become a beneficiary.
How Do I Avoid Stamp Duty?
The answer is quite simple. The Chief Commissioner is satisfied that a continuing trustee cannot become a beneficiary if the trust deed has an irrevocable prohibition against this.
Another simple way to avoid stamp duty is to have a trustee company which is also prevented from becoming a beneficiary in the terms of the trust deed.
It is important to seek legal advice in conferring the terms of your trust deed to reflect this purpose.
What About Self-Managed Super Funds (SMSFs)?
Transferring to a SMSF is a great way to avoid stamp duty where you are unable to meet the above conditions. A SMSF qualifies as a ‘special trustee’ under the Act, meaning that a nominal rate of $50 applies upon the transfer of dutiable trust property to it due to the retirement or appointment of a trustee (s 54(2)).
Transferring to a SMSF avoids the application of s 54(3), such that a new or continuing trustee who could become a beneficiary does not nullify the nominal stamp duty.
Self-Managed Super Funds (SMSFs)
SMSFs are excellent tax effective tools to deal with real estate and save for retirement. The NSW Duties Act concedes nominal rates of $500 where there is a transfer of dutiable property to a SMSF held only for the transferor member or only for his/her retirement benefit (s 62A NSW Duties Act). Additionally, where the trustee of a SMSF pays stamp duty for the agreement for the sale and transfer of land, only a nominal amount needs to be paid to transfer the asset to the custodian of the SMSF.
Transferring Business Assets To SMSF
If dealing with property used solely for a business purpose with no encumbrances, or with settled debt, business owners can benefit greatly from transferring them to a SMSF. To transfer to a SMSF, consider whether the SMSF has enough liquid capital to purchase the property. If it does not, the balance of the purchase amount paid by the SMSF can be covered by a non-concessional contributions cap.
What If My SMSF Has More Than One Member?
If more than one person is transferring the property into the SMSF, nominal duty applies if they are to retain the same proportion of interest or benefit in the property as they did before the transfer (s 62A(1)(c)).
When a single member is transferring property to a SMSF which has more than one member, the transfer property must be segregated from other fund assets (s 62A(1)(a)). Segregating property within a trust excludes other fund members from gaining any interest, benefit or ownership of the property (s 62A(2)). Most trust deeds need to be amended before the transaction to affect the segregation.
What If My SMSF Is To Borrow The Acquired Property?
Section 62B allows an additional nominal rate of $500 if a declaration of trust is made by the custodian of the trustee of the SMSF, that the property is to be held solely for the benefit of the trustee. The declaration must name the SMSF and confirm that the consideration has or will be provided; and full stamp duty or nominal duty under s 62A must have been paid for the acquisition.
The Importance Of Amending The Trust Deed To Affect Nominal Rates
To ensure that the Office of State Revenue is satisfied with the requirement of Sections 62A and 62B, the trust deed must be amended to show the irrevocable exclusive benefit of the acquired property to the transferor.
If you have a query relating to any of the information in this article, or you would like to speak with us with regards to transferring an asset between your trusts or acquiring an asset using a trust, please feel free to contact us today.