We previously reported on the Victorian Supreme Court decision of MD Commercial Pty Ltd & AJ Commercial Pty Ltd v Commissioner of State Revenue [2018] VSC 560 which considered the application of section 35 of the Duties Act 2000 (Vic) (Act). This section deals with transfers to and from a trustee or nominee.
This case concerned two brothers who inherited interests in a property. The brothers transferred each of their interests into separate trusts of which each was the sole beneficiary. The property was subsequently subdivided, developed and sold.
The transfers were initially deemed exempt from transfer duty under section 35(1)(a). The Commissioner of State Revenue (Commissioner) then retrospectively determined that the exemption did not apply.
The Commissioner administered the exemption on the basis that it requires the property to be ‘held solely’ for the transferor. In this case the trust deeds in question contained powers which permitted the trustees to do more than merely ‘hold’ the property for the transferors, such as allowing them to develop, subdivide and sell the land. On this basis the Commissioner found the exemption did not apply as the trustee could not aptly be described as a ‘bare’ trustee under the modern definition of a ‘bare’ trust (which a trustee should have no active duties to perform: Herdegen v Federal Commissioner of Taxation (1988) 20 ATR 24.
The Commissioner was successful in the Victorian Supreme Court and the taxpayer appealed to the Court of Appeal. The Court of Appeal handed down its decision on 13 December 2019 in favour of the taxpayer. The decision provides an important clarification on the application of section 35(1)(a) of the Act.
The Court of Appeal allowed the taxpayer’s appeal and, in its decision, has provided further clarity on the application of section 35(1)(a) of the Duties Act 2000 (Vic).
The Court of Appeal clarified the requirement that the property be ‘held solely’ for the transferor, specifying that the property must be held for the transferor as beneficial owner, and for no-one else, for as long as the trust exists. The trustee cannot create further beneficiaries to the trust; but is not precluded from subdividing and selling the property. Additionally, the Court stated that while trust deeds that create an immediate and binding obligation to develop and sell the property are not the type of trust the exemption is designed to encompass, trust deeds that merely facilitate future possibilities of sale or development can qualify for the exemption under section 35(1)(a).
Accordingly, a trust deed that provides the beneficiary a broad discretion to require the trustee to act in accordance with its future directions and contains broad trustee powers, including deriving income from the property to form part of the trust fund, is likely to comply with section 35(1)(a) so long as trust property is held solely for the benefit of the transferor. By contrast, a trust deed that shifts the beneficial entitlement to the property, or alters the nature of the interest (for example, by creating a right to money instead of a right to land), or allows for the beneficiary’s interest to be dispersed or diluted among other entities, is unlikely to satisfy the test in section 35(1)(a).
To discuss this further or for more information please contact:
Laura Spencer
Senior Associate
T +61 3 9611 0110
E lspencer@sladen.com.au
Denise Tan
Senior Associate
T +61 3 9611 0160 | M +61 438 714 965
E dtan@sladen.com.au
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
