Declaration of trust in an agreement for sale v2

Preamble

1. Chapter 2 of the Duties Act 1997 (“Act”) imposes duty on ‘dutiable transactions’, including an agreement for the sale or transfer of dutiable property (section 8 (1)(b)(i)), and a declaration of trust over dutiable property (section 8 (1)(b)(ii)). A declaration of trust is defined in section 8 (3) to mean:

   “any declaration (other than by a will or testamentary instrument) 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 although the beneficial owner of the property, or the person entitled to appoint the property, may not have joined in or assented to the declaration”

2. Following the decision of the Court of Appeal in Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285 (Benidorm”) and effective from 19 May 2022, section 8AA was introduced into the Act to impose duty on an acknowledgement of trust on the making of a statement that—

   1. purports to be a declaration of trust over dutiable property, but
   2. merely has the effect of acknowledging that identified property vested, or to be vested, in the person making the statement is already held, or to be held, in trust for a person or purpose mentioned in the statement.
3. For the purpose of charging the duty—
   1. the making of the statement is taken to be a declaration of trust over dutiable property and, accordingly, is a dutiable transaction, and
   2. the property vested, or to be vested, in the person making the statement is taken to be the property transferred, and
   3. the person making the statement is taken to be the transferee, and
   4. the transfer is taken to occur when the statement is made.
4. Section 294 of the Act provides:

   “An instrument that contains or relates to several distinct matters for which different duties are chargeable under this Act is to be separately and distinctly charged with duty in respect of each such matter, as if each matter were expressed in a separate instrument”.

5. In some circumstances, a contract for sale of property may be liable to duty both as an agreement for the sale or transfer of dutiable property and as a declaration of trust over that property. This ruling identifies those circumstances and also circumstances when a declaration or acknowledgement of trust over dutiable property will be liable to duty.

Ruling

6. In Farrar v Commissioner of Stamp Duties (1975) 5 ATR 364 (“Farrar”), Sheppard J held that the description of the purchaser ‘as trustee for John Joseph Farrar’ amounted to a declaration of trust on the basis that without those words, there was nothing binding the purchaser to hold the land purchased on trust. Accordingly, duty was payable in respect of the document as both a contract of sale and a declaration of trust.

7. A provision of a document is more likely to be held to be a ‘distinct’ matter within section 294 of the Act if it does more than record obligations imposed by law (see Commissioner of Stamp Duties (NSW) v Pendal Nominees Pty Ltd & Anor (1989) 167 CLR 1. Provisions in the form of a covenant, the use of mandatory language and the creation of enforceable rights in parties other than the beneficial owner are instances in which the provisions of a document will go beyond the general law. Another indication is where the agreement for sale and the declaration of trust would have been assessed separately had they been expressed in different documents.

8. The decision in Benidorm narrowed the scope of the declaration of trust charging provisions. The decision held that the definition of “declaration of trust” in the Act does not encompass mere acknowledgments of existing trusts. The declaration must have a legal consequence/s beyond merely acknowledging that which already exists. Prior to Benidorm, an acknowledgement of trust was interpreted by the Chief Commissioner as being a declaration of trust and was liable to duty unless concessional duty applied.
9. From 19 May 2022, the making of a statement that appears to be a declaration or acknowledgement of trust in a contract or in the contractual arrangements and has the effect of acknowledging that identified property vested, or to be vested, in the person making the statement is already held, or to be held, in trust for a person or purpose mentioned in the statement is liable to duty.

Example 1: PSQ Pty Ltd purchases a property as trustee for ANT Pty Ltd. The purchaser under the contract is described as PSQ Pty Ltd as trustee for ANT Pty Ltd. There is no prior declaration of trust between PSQ Pty Ltd and ANT Pty Ltd. The contract is liable to duty on the purchase of the property as well as a declaration of trust. This is because the contract also declares that PSQ Pty Ltd is purchasing the property of behalf of ANT Pty Ltd.

Example 2: PSQ Pty Ltd purchases a property on behalf of ANT Pty Ltd. The purchaser under the contract is PSQ Pty Ltd and there is no evidence of a declaration of trust. After the purchase of the property, PSQ Pty Ltd & ANT Pty Ltd issue a statement acknowledging that PSQ Pty Ltd as trustee acquired the property for ANT Pty Ltd as beneficiary. The statement is liable as an acknowledgement of trust. The person liable is the person declaring/acknowledging the trust i.e., PSQ Pty Ltd.

Example 3: If after the contract is executed but before the transfer is completed PSQ Pty Ltd declares or acknowledges that the property is being purchased on behalf of ANT Pty Ltd, this will also be liable to duty as a declaration or acknowledgment of trust.

Note: If the beneficiary (real purchaser) provided the purchase money, section 55 may apply, and concessional duty of $50 will be payable on the declaration or acknowledgement of trust instead of ad valorem duty. For section 55 to apply, documentary evidence is required to prove that the real purchaser provided the deposit and the purchase money.

Note: If there is a declaration or acknowledgement of trust that declares or acknowledges the same trust to which the same dutiable property was transferred to the person declaring the trust and ad valorem duty was paid, it may be liable to concessional duty of $10 under section18(6) of the Act.

10. Consistent with the decision in Farrar’s case referred to above, a contract for sale that also effectively creates or acknowledges a trust, will be considered to be liable to duty as a declaration of trust or an acknowledgement of trust. The duty is in addition to the duty payable as an agreement for sale or transfer. For example, where the purchaser is described:
    1. as trustee for a named person or persons
    2. as trustee for a named class of persons (for example, ‘ the children of X’, or ‘the beneficiaries of the XYZ Trust’)
    3. as trustee for a named corporate body
    4. as trustee for a named unincorporated body.
11. In some instances, where the transaction is the same as paragraph 10 above, and there is already a custodial arrangement in place, concessional duty under sections 55[i], 62B or 18(6A) of the Act may apply. For example, where the purchaser is described:
    1. as custodian for the trustee for a named person or persons
    2. as custodian for the trustee for a named class of persons
    3. as custodian for XYZ as trustee for a named corporate body
    4. as XYZ as custodian for ABC Pty Ltd as trustee for a named unincorporated body.
12. A contract for sale will also be considered to be liable to duty as a declaration of trust or an acknowledgement of trust, in addition to the duty payable as an agreement for sale even in situations where the contract contains a statement that appears to be a declaration of trust over dutiable property but merely has the effect of acknowledging that the dutiable property to be vested in the person making the statement will be held, in trust for a person or purpose mentioned in the statement.
13. A declaration or statement that does not identify dutiable property and the person or persons for whom, or the purpose or purposes for which, the property is to be held will not constitute a declaration of trust or an acknowledgement of trust for duties purposes. Further, words in a contract that are merely descriptive of the purchaser's capacity as trustee of an existing named trust would not amount to a declaration of trust or an acknowledgement of trust for duties purposes.
14. An instrument will not be considered to be liable to duty as a declaration of trust or an acknowledgement of trust where, the trust is pre-existing and a person is described:
    1. as trustee
    2. as trustee for the estate of a named person
    3. as trustee for a named trust
    4. as trustee for a named superannuation fund
    5. as trustee for a company to be formed or incorporated
    6. as custodian for the trustee for the estate of a named person
    7. as custodian for the trustee for a named trust
    8. as custodian for the trustee for a named superannuation fund
    9. as custodian for the trustee for a company to be formed or incorporated.

Note: In paragraph 14 the reason the instrument is not liable as a declaration or acknowledgement of trust is because the words in the instrument are merely descriptive of the person’s capacity as trustee/custodian and the beneficiaries of the trust are not mentioned (i.e., the beneficiaries are not named) in the instrument

15. If a trust already exists and the trustee makes a statement that appears to be a declaration of trust over identified dutiable but merely has the effect of acknowledging that identified dutiable property vested or to be vested, in the person making the statement is already held, or to be held, in trust for a named person or persons or for a purpose or purposes mentioned in the statement, it will be liable to duty as an acknowledgment of trust. This is consistent with the Chief Commissioner’s practice before Benidorm.
16. When confirming existing trust arrangements there may be consequences if you identify the property and the person or persons for whom or the purpose or purposes for which it is held. Words merely referring to an existing trust or to an existing trust deed will not amount to a declaration of trust or acknowledgement of trust.  A typical limitation of liability clause would also not generally be a declaration of trust. Generally, documents such as statements and statutory declarations requested by Revenue NSW or other Government Bodies may not be liable as a declaration or acknowledgement of trust. To be a declaration of trust or an acknowledgement of trust there must be a statement by the trustee that the relevant dutiable property is held or is to be held on trust for the identified persons.