Introduction
This application concerns whether the transfer of primary production land from Mrs Wallace to Camwall Pty Ltd as trustee for the Antap Trust (‘Applicant’) qualifies for the exemption from duty under s. 274 of the Duties Act 1997 (NSW) (‘the Act’). The Applicant contends the transaction meets the criteria for an intergenerational transfer between family members. The dispute turns on the proper construction of s. 274 of the Act.
The Tribunal set aside the assessment made by the Chief Commissioner of State Revenue (‘Respondent’) on 15 January 2024 and remitted the matter back to the Chief Commissioner to be reconsidered in accordance with the reasons in the decision.
Background
On 26 October 2023, the Applicant entered an agreement to purchase land used for primary production (‘the Property’) from Mrs Wallace. The Property is land used as part of the Wallace family business of primary production.
The sole director of the Applicant is Mr J Wallace he is also the son of Mrs Wallace and is the person who carried on the Wallace family business.
The Antap Trust (‘Trust’) is a discretionary family trust. Mr J Wallace is named as the Principal in the Antap Trust Deed (‘Deed’), a beneficiary of the Trust and, prior to its amendment on 24 January 2024, clause 3.4(c) of the Trust Deed made provision for the children of Mr J Wallace being entitled, as takers in default of appointment to the Trust.
On 15 January 2024, the Respondent decided he was not satisfied that the Applicant’s purchase of the Property was exempt from duty under s. 274 of the Act and assessed the Applicant as being liable for ad valorem duty on the transfer, under Chapter 2.
The Applicant objected to the assessment and on 5 June 2024, the Respondent disallowed the objection.
On 2 August 2024, the Applicant lodged an application for review, contending that the purchase of the Property was an intergenerational transfer of land used for primary production that satisfied the matters in s. 274(2)-(4) of the Act.
The Statutory Framework
Section 274 of the Duties Act provides:
274 Transfer of certain business property between family members
- Duty under this Act is not chargeable in relation to a transfer of land used for primary production…that is an integral part of the business of primary production, if the Chief Commissioner is satisfied of all the matters specified in subsections (2)–(4).
- Firstly…the transferor, or the person directing the transferor, is a member of the family of -
- the transferee, or
- the person directing the transferee.
- Secondly…that the land was, immediately before the transfer or the date of first execution of the instrument of transfer, land used for primary production…
- Thirdly…the business will continue to be carried on, whether alone or with others, by -
- the transferee, or
- the person directing the transferee.
4A. For the purposes of this section, the person directing a transferor or transferee is -
(b) for a transferor or transferee acting in the capacity of trustee of a discretionary trust—a person or persons who are entitled, as takers in default of appointment, to not less than a 25% interest in the capital of the trust, being an entitlement -
- for a transferor - that existed for at least 3 years before the date of the transfer or that existed from the date of establishment of the trust, or
- for a transferee - that exists for at least 3 years after the date of the transfer, or…
Submissions
The Applicant submitted that the exemption in s. 274 should be assessed at the date of the instrument of transfer, not the contract date, relying on the Explanatory Note and Second Reading Speech of the State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 and argued:
- the Parliament’s use words like ‘after the transfer’, meant that it was Parliament’s intention that duty would be assessed at the time of the transfer
- contextually it made sense that duty is assessed at the time of transfer, as the s. 274 exemption is granted on the assumption that the person(s) directing the transferee will hold and maintain the entitlement as taker(s) in default of appointment for at least 3 years ‘after the date of the transfer’.
The Applicant further argued that the exemption, in this case, continues to apply because as at the date of the transfer, the person directing the Applicant was Mr J Wallace, and not his children, a change which occurred prior to the date of the transfer, through the amendment of the Deed in January 2024, when Mr J Wallace became entitled, as the sole taker in default of appointment to not less than 25% interest in the Trust. Since that time, Mr J Wallace has maintained his entitlement as the taker in default, and should he die before the expiry of three years his children become entitled as takers in default of appointment.
While the Respondent conceded, at hearing, that each of the matters in s, 274(2) to (4) were likely satisfied as at the date of contract, being 26 October 2023, the amendment of the Deed had the effect that the exemption ceased to apply, because Mr J Wallace’s children did not retain their entitlement as takers in default for a period of three years after the contract date.
Decision
Relevant date for determination of exemption:
The Tribunal agreed with the Respondent that relevant date for determination of whether the exemption under s. 274(2)-(4) of the Act applies is the date on which liability for duty arises under Chapter 2 of the Act (i.e. the contract date). This is determined by Chapter 2 of the Act, which treats the execution of a contract for sale (26 October 2023) as the point at which a “transfer” occurs, and duty liability is triggered.
The Tribunal agreed there was an inter-family connection between the transferor and transferee (s. 274(2)); that immediately before 26 October 2023, the land was used for primary production in connection with a business carried on by the person directing the transferee, or a member of the family of the person directing the transferee (s. 274(3)); and that the Wallace family primary production business will continue to be carried on, whether alone or with others by the person directing the transferee (s 274(4)).
Amendment to clause 3.4(c)(1) of the Deed:
The Tribunal held that the amendment to the Deed, being the removal of Mr J Wallace’s children, did not alter the dutiable transaction that was the agreement for the sale and transfer of the Property.
The Respondent argued that the same individual must hold this entitlement throughout the entire three-year period and in this case the applicant did not meet the criteria under s. 274(4A)(b)(ii) of the Act.
The Tribunal disagreed, finding that there is no express requirement contained in ss. 274(4A)(b), (c) or (d), that they be the same person. Rather, ss. 274(4A)(b), (c) and (d), prescribe, for the purposes of that subsection, who controls the entity the subject of the relevant paragraph. Control is determined under these paragraphs by reference to the prescribed “entitlement” relevant to the entity, be it the transferor or transferee and it is the person so ‘entitled’ who controls that entity. The Tribunal stated that if there was a requirement that it be the same person so entitled, this would restrict family farm entities, who may wish to make a change to the relevant instrument as to which family member is to be entitled.
In this case, the amendment to the Deed named Mr J Wallace as the taker in default, replacing his children. The Tribunal found that Mr J Wallace, being a family member and active in the family farming business, still satisfied the requirements of s. 274 of the Act. Therefore, the amendment did not disqualify the Applicant from the exemption.
Orders
- The assessment for duty made by the Respondent on 15 January 2024 is set aside and, remitted for reconsideration by the Respondent on the issue as to whether the amendment to the Deed disentitled the applicant to the exemption in s.274 of the Act, in accordance with these reasons for decision and the proper construction and application of s. 274(4A)(b)(ii) of that Act.
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