|Practice note number||CPN 010|
|Date issued||2 September 2019|
Commissioner of State Revenue
This Commissioner’s Practice Note will assist trustees of discretionary trusts and customers who may benefit under a discretionary trust to determine whether the payroll tax grouping provisions apply to their circumstances. It also explains the documentation that must be provided to the Chief Commissioner to allow the degrouping effect to be determined.
Note: Failure by customers to advise the Chief Commissioner that they are members of a group by virtue of them being a beneficiary of a discretionary trust may result in a tax default by all members of the group, and could result in interest and penalty tax being incurred.
For the purposes of grouping commonly controlled businesses, a person who may benefit under a discretionary trust is taken to be a beneficiary in respect of more than 50% of the value of the interests in the trust if:
A trustee of a discretionary trust may be grouped with another entity if a person who may benefit under the trust has a controlling interest in a business conducted by that other entity.
Note: “A person who may benefit from a discretionary trust” is called a “discretionary beneficiary” in this practice note.
A discretionary beneficiary will avoid the application of the grouping provisions of s. 72(2)(g) and s. 72(6) if:
For grouping purposes, a “discretionary beneficiary” has a controlling interest in the business conducted by a trustee on behalf of the trust. If a person who has such a controlling interest also has a controlling interest in another business, the trustee who is carrying on the business of the discretionary trust is grouped with the entity that conducts that other business.
ABC Pty Ltd conducts a business of managing rental properties. Angela Roberts has a controlling interest in the business under s.72(2)(e) because she is the sole shareholder of ABC Pty Ltd.
DEF Pty Ltd carries on a real estate business as trustee of the Roberts Family Trust. Angela is one of the discretionary beneficiaries of the Roberts Family Trust and therefore is taken to have a controlling interest in the real estate business under ss.72(2)(g) and 72(6). Note that a “discretionary beneficiary” may be a person who is either named or described (eg “…the issue of…” a named person).
ABC Pty Ltd and DEF Pty Ltd as trustee who is carrying on the real estate business are therefore grouped under s.72(1) because Angela is taken to have a controlling interest in both businesses.
The Chief Commissioner will accept that a discretionary beneficiary will cease to have a controlling interest in a trust business conducted by the trustee if the trust deed is amended to remove the person as a discretionary beneficiary.
The amendment of the trust deed must be made in accordance with the provisions of the trust deed. For example, the terms of the discretionary trust may provide that the trust deed can only be amended in writing by a deed signed by the trustee and the appointer.
An amending deed that removes a discretionary beneficiary will not affect grouping prior to the date on which it is executed.
Generally, the amendment of a deed to remove a discretionary beneficiary does not trigger liability for duty in NSW (see Revenue Ruling DUT 017 Variations to Trusts). However, if an amending deed triggers a duty liability for other reasons, the deed must be stamped under the Duties Act 1997 (NSW) (“Duties Act”) before it can be relied upon in a degrouping application.
Once the amending deed becomes effective, the Trustee should provide the following documentation to Revenue NSW to consider whether degrouping has occurred:
The Chief Commissioner will accept that a person who may benefit under a trust as a discretionary beneficiary will cease to have a controlling interest in the trust business if all of the following conditions are met:
These requirements apply to a discretionary beneficiary, whether identified by name or by some other description, eg a person’s issue or other relatives.
Unless these requirements are expressed to be irrevocable, it may be possible for the amending deed to be revoked by agreement of the parties, thereby reinstating the rights of a potential beneficiary.
Once an amending deed becomes effective, the Trustee should provide the following documentation to Revenue NSW to consider whether the degrouping is effective:
A liability to payroll tax is determined having regard to the facts and circumstances at the time the employer becomes liable to pay payroll tax: Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd  NSWCA 184 at  to .
The extinguishment of the rights of a discretionary beneficiary, whether by way of amendment of a trust deed or by irrevocable deed of disclaimer, cannot effect a change in the make-up of a group prior to the date on which they become binding on both the trustee and the beneficiary. This is the case even if a disclaimer purports to have effect prior to the date the disclaimer was executed. The Chief Commissioner only applies a degrouping order from the date on which the facts and circumstances which justified the order took effect.
The only circumstance in which the payroll tax liability of a group member may be altered retrospectively is if the Chief Commissioner determines pursuant to s 79 of the Payroll Tax Act that a person should be excluded from a group from a date before the exclusion is granted: Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd  NSWCA 184 at .
Commissioner’s Practice Note CPN 009: Payroll Tax Grouping provides guidance on the Chief Commissioner’s administration of the grouping provisions and the discretion to exclude a member from a group.
Commissioner of State Revenue