Proper drafting of legal documents can be especially important in a stamp duty context as inappropriate drafting can result in an unexpected stamp duty cost. This is illustrated by a case that was decided in New South Wales last year. The Chief Commissioner succeeded in extracting two lots of stamp duty from the taxpayer in respect of an arrangement that involved only one lot of dutiable property. Double duty might not have arisen had the relevant document been drafted differently.
AL-SAEED AND ASSOCIATION PTY LTD ATF AL-SAEED EDUCATION AND WELFARE TRUST V CHIEF COMMISSIONER OF STATE REVENUE
In Al-Saeed and Association Pty Ltd ATF Al-Saeed Education and Welfare Trust v Chief Commissioner of State Revenue, a charitable trust was established for the advancement of public education and welfare.
The initial trust property of the Al-Saeed Educational and Welfare Trust was the settlement sum of $100. The trust deed also contained the following recital:
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 day after executing the trust deed, the trustee entered into the contract for the purchase of the property. The purchaser was described in the contract as “Al-Saeed & Associates Pty Ltd atf Al-Saeed Educational and Welfare Trust”.
Transfer duty was assessed and paid on the contract. However, the Chief Commissioner also issued an assessment notice in respect of the trust deed and imposed the same amount of duty on the deed.
This stamp duty outcome might seem surprising given that the case merely involved the establishment of a trust and the trustee acquiring property for the trust. There was only one acquisition of property and yet two lots of stamp duty were payable.
Double duty arose because, in New South Wales as well as in most other States and Territories, a declaration of trust is a separately dutiable transaction. Accordingly, an arrangement that involves a declaration of trust over dutiable property as well as an agreement to purchase dutiable property will give rise to two dutiable transactions.
In the present case, the Administrative Decisions Tribunal confirmed the Chief Commissioner’s assessment of duty on the trust deed on the basis that the recital was a dutiable declaration of trust over the property.
This is an unfortunate result given that the taxpayer is the trustee of a charitable trust. But it is even more unfortunate considering that the outcome could have been prevented through appropriate drafting of the trust deed.
Specifically, it was arguably unnecessary to include the particular recital in the trust deed since the trust deed already contained a declaration by the trustee that they would “hold the settlement sum and all monies and property both real and personal which may hereafter be given to the Trust...upon trust...”. In addition, the contract for the purchase of the property made clear that the trustee was purchasing the property in their capacity as trustee such that the property would become an addition to the existing trust property. In these circumstances, it seems that the recital was superfluous...and costly.
Even without the recital, the trust deed was dutiable because it was an instrument that declared a trust over New South Wales property, being the settlement sum of $100. However, as the settlement sum was not dutiable property, the trust deed would have only attracted fixed duty of $500 (in the absence of the recital).
IMPLICATIONS OF THE DECISION
This case highlights the importance of drafting a trust deed carefully so as to prevent making any unnecessary or inadvertent declarations of trust over dutiable property. However, the dangers do not end there.
Another potential area of risk which was touched on in the case is where a reference to an existing trust in a transaction document results in a “fresh” declaration of trust which might again attract ad valorem stamp duty. The risk exists even if the declaration is merely an acknowledgement or confirmation of the existing trust, and no new trust or interest in property is created.