7 March, 2016
What you need to know
This Bulletin outlines recent stamp duty developments which may affect your business:
Revenue Office Developments
NSW — The NSW Chief Commissioner has issued Revenue Ruling DUT 044 to indicate who he considers is suitably qualified to provide a valuation of dutiable property for the purposes of section 305 of the Duties Act 1997 (NSW).
Case Law Developments
In Liu v Commissioner of State Revenue (Review and Regulation) [2016] VCAT 87, the Victorian Civil and Administrative Tribunal decided that the distribution of real property from the trustee of a discretionary trust to a beneficiary who is the trustee of other discretionary trusts, was not exempt from duty as the beneficiaries of the receiving trust were not beneficiaries of that trust at the time the property was acquired on the terms of the first trust.
On 2 March 2016, the Victorian Civil and Administrative Tribunal followed the Liu decision after considering similar facts in Chiang v Commissioner of State Revenue (Review and Regulation) [2016] VCAT 304.
In Kamareddin v Chief Commissioner Of State Revenue [2016] NSWCATAD 21, the NSW Civil and Administrative Tribunal decided that the transfer of property to the taxpayer was exempt from duty on the basis that the marriage of the taxpayer had irretrievably broken down according to the religious beliefs of the taxpayer, and the transfer was for the division of matrimonial property as a consequence of the breakdown.
NSW Revenue Ruling DUT 044 – Suitably qualified valuers
Summary
On 24 February 2016, the NSW Chief Commissioner issued Revenue Ruling DUT 044 which sets out who the Chief Commissioner considers is “suitably qualified” to provide a valuation of property for the purpose of section 305 of the Duties Act 1997 (NSW).
The Valuers Act 2003 (NSW), which required property valuers in NSW to be registered, was repealed with effect from 1 March 2016. As a consequence, section 305 of the Duties Act 1997 (NSW), which permits the Chief Commissioner to request or obtain a valuation, was amended to refer to valuations provided by "suitably qualified" valuers.
The ruling indicates who the Chief Commissioner considers to be suitably qualified to provide a valuation of property. They include:
- a member of the Australian Valuers Institute;
- a member of the Australian Property Institute who is occupied as a valuer; or
- a member of the Royal Institution of Chartered Surveyors.
The Chief Commissioner will consider a valuation made by any other person on a case by case basis.
Liu v Commissioner of State Revenue (Review and Regulation) [2016] VCAT 87
Facts and case history
On 21 January 2016, the Victorian Civil and Administrative Tribunal in Liu v Commissioner of State Revenue (Review and Regulation) [2016] VCAT 87, decided that the distribution of real property from the trustee of a discretionary trust to a beneficiary, being the trustee of other discretionary trusts, was not exempt from duty as the beneficiaries of the receiving trust were not beneficiaries of that trust at the time the property was acquired on the terms of the first trust.
The Zou Family Trust (the principal trust) was established in April 2011 with Liu as trustee. Between August 2012 and April 2013, Liu acquired various residential properties at Docklands in Victoria as trustee of the principal trust. In July 2013, three discretionary trusts were established with Liu as trustee (the receiving trusts).
In September 2013, Liu executed deeds to distribute property she held on trust for the principal trust to herself as trustee of the receiving trusts.
In December 2013, the distributions were assessed to transfer duty by the Commissioner, having determined that the transactions were not exempt under section 36A of the Duties Act 2000 (VIC).
The exemption applied to a transfer of dutiable property subject to a discretionary trust (the principal trust) to a beneficiary of a trust if:
- duty was paid on the acquisition of property that resulted in the property becoming subject to the principal trust;
- the beneficiary was a beneficiary at the time that the property first became subject to the principal trust (the “relevant time”); and
- the transfer is to the beneficiary as trustee of another trust of which all the beneficiaries are “relevant beneficiaries” (being natural persons who were beneficiaries of that trust at the relevant time).
Liu contended that the exemption in section 36A applied since the reference to “that trust” in the definition of relevant beneficiary was a reference to the principal trust. The receiving trust deeds included the same named beneficiaries as the principal trust deed, and the classes of beneficiaries were very similar in both trust deeds.
Decision
The Tribunal found that the transfers from the principal trust were not made to "relevant beneficiaries". The reference to "that trust" in the definition of "relevant beneficiary" referred to the receiving trusts rather than the principal trust. Since the receiving trusts were established after the principal trust acquired the properties, the "relevant beneficiaries" could not have been beneficiaries of the receiving trusts when the principal trust acquired the properties that were transferred.
The Tribunal accepted that the scheme of section 36A is to establish a continuity of beneficiaries of the principal trust and the receiving trust. It could not have been intended that the exemption should extend to an indefinite number of transferee trusts which the applicant might decide to create at any time. The Tribunal had regard to the history of section 36A, the explanatory memorandum and the previous exemption in its conclusion.
The Tribunal also dismissed additional contentions based on there being no dutiable transaction because there was no change in beneficial ownership of the property. The Tribunal found that dutiable property ceasing to be the subject of the principal trust and becoming subject to the receiving trusts is an instance of a change in beneficial ownership, as defined.
Relevance
The decision clarifies the Victorian requirements for exemption which apply to the distribution of property held on trust to a beneficiary who is the trustee of another trust.
Kamareddin v Chief Commissioner Of State Revenue [2016] NSWCATAD 21
Facts and case history
On 5 February 2016, the NSW Civil and Administrative Tribunal in Kamareddin v Chief Commissioner Of State Revenue [2016] NSWCATAD 21, decided that the transfer of property to the taxpayer was exempt from duty on the basis that the marriage of the taxpayer had irretrievably broken down, based on the religious beliefs of the taxpayer, and the transfer was for the division of matrimonial property as a consequence of the breakdown.
The taxpayer married Mr Hussein in 2003 and resided in premises owned by him. The taxpayer gave evidence that she separated from Mr Hussein in September 2011 and that they were divorced in accordance with their Muslim religious beliefs on 3 November 2011. At that time, the taxpayer and Mr Hussein orally agreed to divide their assets and a contract for sale of the property was executed. No divorce occurred under Australian law.
The taxpayer fell pregnant to Mr Hussein several months later and in order to ensure that her new child would be born in the course of a marriage, remarried Mr Hussein in accordance with their religious practices.
The taxpayer contended that she was entitled to an exemption from duty under section 68(1) of the Duties Act 1997 (NSW) on the basis that the property was transferred in accordance with an agreement that was made for the purpose of dividing matrimonial property as a consequence of the breakdown of the marriage.
Decision
The Tribunal found that the taxpayer held the belief that the marriage between her and Mr Hussein had ended as they had been divorced in accordance with her religious beliefs.
Although the Tribunal noted material inconsistencies between documents signed by the taxpayer and the taxpayer's sworn evidence, it considered that the taxpayer was a truthful witness who had limited understanding of spoken and written English and consequently did not have an adequate understanding of the documents she had signed. The Tribunal preferred the oral evidence of the taxpayer, and noted that her subsequent act to remarry Mr Hussein under Islamic religious law was consistent with an earlier breakdown of her marriage.
For that reason, the Tribunal concluded that, for the purpose of section 68(1) of the Duties Act 1997 (NSW), as at 4 November 2011, the taxpayer's marriage had broken down irretrievably and that the contract for sale of the property formed part of an agreement made between the taxpayer and Mr Hussein for the purpose of dividing their matrimonial property as a consequence of the breakdown of their marriage.
Relevance
The decision is an example of a Tribunal standing in the shoes of the Commissioner, re-examining the facts presented, particularly the oral evidence of the taxpaying and coming to a different conclusion than the Commissioner to the application of duty exemption.
For further information, please contact:
Geoffrey Mann, Partner, Ashurst
geoffrey.mann@ashurst.com
