In Australia, a settlor establishes a trust by settling a nominal sum upon a trustee. This is recorded in a trust deed and nominal stamp duty is paid on the trust deed. Real estate and other assets are then purchased in the name of the trustee without any more stamp duty being payable on the trust deed.

The risk exists of double stamp duty if there is any specific reference to property in the trust deed. If so, ad valorem stamp duty may be payable twice: once on the trust deed itself, and again on the contract for purchase of the property.

The decision of Al-Saeed and Associates Pty Ltd atf Al-Saeed Education and Welfare Trust v Chief Commissioner of State Revenue [2014] NSWCATAP 11 illustrates the risk.

The NSW Civil and Administrative Tribunal Appeal Panel decided that the trust deed dated 1 September 2011, was stampable on the value of the property, although the contract for the purchase of the property was not entered into until the next day, because the trust deed contained a recital that it was established to purchase a specific property.

As a result, ad valorem stamp duty of $33,740 was payable on the trust deed. The circumstances and the Tribunal’s reasoning were as follows -

The Trust Deed in Al-Saeed

Clause 1 contained the declaration of trust -

The Settlor and the Trustee declare that the Trustee shall hold the settlement sum and all monies and property both real and personal ... UPON TRUST ... in accordance with the terms of this Deed for promoting the study of education and for the welfare of the general public ...

If the settlement sum is nominal (in this case it was $100), and there is no specific property mentioned, then nominal stamp duty is payable in NSW $500 under s.58(1)). Standard trust deeds are prepared and stamped in this way.

But in Al-Saeed, the drafter decided to include a recital in the trust deed that the trust was established to purchase a specific property. This was Recital C –

The trustee wishes to acquire a property on behalf of the Trust located at 1492 Camden Valley Way, Leppington NSW Auto Consol 10781/149 ("the property")

The drafter saw no harm in including the recital because the property would be held in trust for a charitable body. Therefore he lodged the trust deed for stamping as an exempt instrument. To his surprise, the trust deed was assessed with ad valorem duty.

The application of the Duties Act 1997 (NSW) to the Trust Deed

Under section 8(1)(b)(ii), a declaration of trust over dutiable property is liable to duty as if it were a transfer of dutiable property (s.9(1)). Cash is not dutiable property (s.11).

A declaration of trust is defined under s.8(3) as follows:

“declaration of trust” means any declaration ... that any identified property vested or to be vested in the person making the declaration is or is to be held in trust for the person or persons, or the purpose or purposes, mentioned in the declaration ...

The key issue for the Tribunal was whether the identified property should be limited to the settlement sum referred to in clause 1 of the trust deed, or whether it should be extended to include the property described in Recital C.

This raises the status of recitals in deeds. Courts look at recitals in this way –

There is a common and long-standing practice of including in a deed or agreement certain introductory words, traditionally called recitals, that are written in the document before words such as “Now this deed witnesses...” or “It is agreed...” that state the operative content of the deed. per Campbell, JA, in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 (at para 379), a decision of the Supreme Court of New South Wales – Court of Appeal.

Recitals have this status –

... the recitals in a deed can be looked at as part of the surrounding circumstances of the contract ... (at para 388)

The Tribunal decided that it could look at the whole of the Trust Deed, including Recital C, to find identified property for the purposes of the s.8(3) definition, noting that clause 1 of the Trust Deed stated the Trust Fund was held “in accordance with the terms of this Deed”.

The Tribunal held that the statement in Recital C coupled with clause 1 was enough for there to be a s.8(3) declaration of trust over identified property, and for stamp duty to be payable on the Trust Deed on the value of the property.

Finally, the fact that the purchase contract contained the description of the purchaser as -  “Al-Saeed & Associates Pty Ltd atf Al-Saeed Educational and Welfare Trust”, to make it clear that the property was purchased on behalf of the trust, did not change the fact that ad valorem stamp duty was payable on the trust deed.

Rules for drafters

Lawyers like to start deeds with recitals.

The decision of Al-Saeed illustrates the dangers of inserting ‘one recital too many’ in a trust deed. Without Recital C, nominal stamp duty would have been payable on the trust deed.

One nagging question remains with Al-Saeed – did the Tribunal put the cart before the horse in terms of charging stamp duty on the purchase price of a property not yet purchased?

At the date the trust was established, Al-Saeed did not own and had not entered into a contract to purchase the property. It was possible that that Al-Saeed may have never purchased the property. Why then was it assumed that the dutiable value of the property was based on the contract price and not a nominal amount?