Revenue Ruling No. DUT 041

Landholder Duty: Bare Trusts

Ruling history

Ruling no. Issued date Dates of effect Status
From To
DUT 041 11 October 2010 11 October 2010 - Current

Preamble/Background

  1. The State Revenue Legislation Further Amendment Act (No 2) 2009 introduced a new Part 2A of Chapter 4 of the Duties Act 1997 (acquisition of interests in landholders). Part 2A (comprising sections 157A-157C of the Act) concerns acquisitions and holdings of interests in landholders by trustees of bare trusts.

  2. The general effect of Part 2A is that where an interest in a landholder is acquired or held under a bare trust (or a chain of bare trusts), the ultimate beneficial owner of the interest under the bare trust, rather than the legal owner of the interest (the bare trustee), is deemed to acquire or hold the interest in the landholder.

  3. The purpose of this ruling is to provide an overview of the operation of these new provisions. The ruling does not purport to set out exhaustively the circumstances in which they may apply.

Overview of new provisions

  1. Part 2A applies for the purpose of determining liability for duty under Chapter 4 where a person acquires or holds an interest in a landholder as bare trustee for another person (sec.157A(1)). In Part 2A, a 'bare trustee' includes a custodian (sec.157A(2)).

  2. Section 157C effectively 'looks through' bare trusts by providing that any interest in a landholder that is acquired or held by a person (referred to as the 'legal owner') as bare trustee for another person is taken, for the purposes of Chapter 4, to have been acquired or held by the ultimate beneficial owner of the interest in the landholder, rather than the legal owner.

  3. Section 157B clarifies how this happens by providing that:

    • if a person acquires or holds an interest in a landholder as bare trustee for another person, the other person is a 'beneficial owner' of that interest in the landholder (sec.157B(1));

    • if a person who is a beneficial owner of an interest in a landholder (whether as a result of one or more applications of sec.157B(1)) holds that interest as bare trustee for another person, then that other person is also a 'beneficial owner' of that interest in the landholder (sec.157B(2)); and

    • the 'ultimate beneficial owner' of an interest in a landholder is any beneficial owner of the interest in the landholder who does not hold that interest as bare trustee for another person (sec.157B(3)).

    Thus, for example, if A acquires or holds an interest in a landholder as bare trustee for B (without any subtrust), then B is the ultimate beneficial owner of the interest. However, if B holds his interest as bare trustee for C, then C (rather than B) is the ultimate beneficial owner of the interest (and so on, if there are several layers of sub-trusts).

  4. Accordingly, the ultimate beneficial owner of an interest acquired by the legal owner will be required to lodge an acquisition statement and to pay any duty chargeable under Chapter 4 in respect of any relevant acquisition (as defined in sec.149(1)) made as a result of that acquisition by the legal owner (sec.157C(2)).

  5. Also, the acquisition is to be aggregated with other interests held by the ultimate beneficial owner of the interest or an associated person of the ultimate beneficial owner of the interest, rather than with other interests held by the legal owner or associated persons of the legal owner (sec.157C(4)).

Ruling

Meanings of 'bare trustee' and 'bare trust'

  1. Apart from confirming that a bare trustee includes a custodian, Part 2A of Chapter 4 does not define the expressions 'bare trust' or 'bare trustee'.

  2. The meaning(s) of the expressions 'bare trust' and 'bare trustee' may vary according to the statutory context.[1]

  3. Typically a bare trust (also referred to as a passive trust) is one in which the trustee has no active duties to perform, by contrast with a trust in which there are active duties.[2] However, as a matter of strict logic almost no situation can be postulated where a trustee does not in some circumstances have active duties to perform. For example, a person who holds shares or units on trust for another person absolutely might have to exercise voting rights in respect of the shares or units (in accordance with the wishes of their beneficial owner), but this contingency would not preclude the characterisation of the holding as being that of a bare trust.[3]

  4. The usually accepted meaning of 'bare trust' is a trust under which the trustee or trustees hold property without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey (transfer) it upon demand to the beneficiary or beneficiaries or as directed by them, for example on sale to a third party.[4] This concept of a 'bare trust' was recently confirmed by the High Court in CGU Insurance Limited v One. Tel Limited (in liq) [2010] HCA 26 at [36]. The context of Part 2A of Chapter 4 is consistent with this modern meaning of expression 'bare trust'. Hence, a 'bare trustee' is the trustee under such a trust. The essential point is that the (bare) trustee only acts at the direction of the beneficial owner in respect of any dealings with the trust property.

  5. A bare trust will usually be an express trust (whether or not in writing). It includes, but is not limited to a trust arising under formal custodial arrangements.

  6. In the case of custodial arrangements relating to interests in landholders, the custodian is the legal owner of the interest and the person for whom the custodian acts (which is usually the trustee of an existing trust) is the ultimate beneficial owner of the interest. Thus, for example, if an interest in a landholder is acquired in the name of a custodian for the trustee of a superannuation fund or a unit trust scheme (which would not normally be a bare trust) it is the trustee of the superannuation fund or the unit trust scheme (for whom the custodian holds the interest under a bare trust) who is deemed to acquire the interest under sec.157C of the Act. For the purposes of determining whether that acquisition is a relevant acquisition under sec.149, the interest acquired under the bare trust is to be aggregated with any other interests in the landholder held by the trustee of the superannuation fund or unit trust scheme (whether as the legal owner and/or as the ultimate beneficial owner under one or more other bare trusts) and/or by its associated person(s).

  7. The term 'bare trustee' also encompasses the position occupied by a person holding title to property under a resulting trust arising from the provision by the beneficiary of the purchase money for the property[5] (being the situation referred to in sec.55 of the Act).

  8. A person who operates a business as trustee for another person or persons cannot accurately be described as a bare trustee.[6] However, this does not mean that a bare trustee cannot charge fees for its trustee services as part of an overall business of providing such services (as with a professional custodian company).

Current status of Revenue Ruling DUT 028

  1. In paragraph 19 of Revenue Ruling DUT 028 the Chief Commissioner expressed the view (in relation to the land rich provisions then in Part 2 of Chapter 3 of the Act) that when a trustee of a trust acquires an interest in a landholder, the beneficial owners under the trust have not made an acquisition of an interest (and would not be required to lodge an acquisition statement).

  2. Paragraph 19 must now be read subject to Part 2A of Chapter 4 of the Act. Hence, where the trust involved is a bare trust the effect of Part 2A is that the ultimate beneficial owner of the interest rather than its legal owner (the bare trustee) is deemed to acquire (and once it is acquired, to hold) the interest. If this causes the acquisition to be a relevant acquisition, then the beneficial owner of the interest under the bare trust must lodge the acquisition statement.

  3. However, if the trust involved is not a bare trust then Part 2A of Chapter 4 will not apply and paragraph 19 of Revenue Ruling DUT 028 will continue to apply.

    Thus, for example, if XYZ Pty Ltd in its capacity as the trustee of a family discretionary trust (which is assumed not to be a bare trust) acquires an interest in a landholder, only that person would acquire an interest for the purposes of Chapter 4 of the Act; there would not be an actual or deemed acquisition of an interest by any of the beneficiaries of the discretionary trust.

Transfer of significant interest in a landholder from trustee to custodian

  1. If a significant interest in a landholder held by the trustee of a trust is transferred to a custodian for the trustee, a relevant acquisition will have been made under sec.149(1)(a)(i) of the Act and an acquisition statement will need to be lodged. Under the bare trust provisions in Part 2A the trustee, rather than the custodian, is taken to have made the acquisition. Accordingly, the Chief Commissioner would in the usual case exercise the discretion under sec. 163H(1)(a) of the Act not to charge landholder duty, on the basis that the person who is taken to have acquired the interest (the trustee) is the same person who disposed of the interest as transferor.

Transfer of significant interest in a landholder from a bare trustee to the ultimate beneficial owner

  1. If a bare trustee transfers a significant interest in a landholder to the 'ultimate beneficial owner' of that interest as specified in the bare trust provisions in Part 2A, a relevant acquisition will have been made under sec. 149(1)(a)(i) of the Act and an acquisition statement will need to be lodged. However, if the transfer is liable to nominal duty under Chapter 2 of the Act (or would be liable to nominal duty if the subject shares or units were dutiable property), the Chief Commissioner would in the usual case exercise the discretion under sec. 163H(1)(a) of the Act not to charge landholder duty, on the basis that the person who acquires the interest is the same person who is taken by the bare trust provisions to have held the interest before it was transferred. This is a continuation of the general approach adopted in Revenue Ruling DUT 028 at paragraph 20.

Transitional provisions

  1. Part 2A of Chapter 4 applies to an interest in a landholder that is acquired on or after its date of commencement, 1 December 2009, subject to transitional provisions in Part 32 of Schedule 1 of the Act.

  2. Under clause 81 of the transitional provisions, if the ultimate beneficial owner of an interest in a landholder acquires an interest in a landholder on or after 1 December 2009, an acquisition of an interest in a landholder made before that date (known as a pre-commencement acquisition) that would have been treated as an acquisition made by the ultimate beneficial owner of the interest or an associated person if Part 2A had been in force at the time that the acquisition was made is to be counted for the purpose of determining whether a relevant acquisition has been made.

    Such a pre-commencement acquisition:

    • is treated as an acquisition made by the ultimate beneficial owner of the interest or an associated person (as the case requires); and

    • must be disclosed in the acquisition statement by the ultimate beneficial owner of the interest.

  3. However, a pre-commencement acquisition that is disclosed in an acquisition statement under the above provisions, but which would not have been required to be disclosed but for those provisions, is an exempt acquisition.

    For example, assume that:

    • prior to 1 December 2009, X acquires a 30% interest in a private landholder as bare trustee for A who is acting as bare trustee for B; and

    • after 1 December 2009, C acquires a 30% interest in the same landholder, also as bare trustee for B.

    In this example, the overall effect of the transitional provisions is that B (the ultimate beneficial owner of both 30% interests) has acquired an aggregate 60% interest, but will be required to pay duty only on the later 30% acquisition unless X is associated with B and/or C (in which case duty would be assessed on the full 60%).

Tony Newbury
Chief Commissioner of State Revenue
11 October 2010

Footnotes

  1. Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 283
  2. Corumo Holdings Pty Ltd & ors v C Itoh Ltd & ors (1991) 24 NSWLR 370 at 398; Thorpe v Bristile Ltd (1996) 16 WAR 500 at 505;
  3. Dal Pont & Chalmers; Equity and Trusts in Australia (4th edition,2007) at para [21.45] (pp.548-549)
  4. Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281-282,284; Dal Pont & Chalmers; Equity and Trusts in Australia (4th edition, 2007) at paras [16.19] & [21.45] (pp.431,548)
  5. Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281
  6. Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd & ors [2003] WASCA 11 at [57]-[59]
Last updated: 24 April 2017