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Part 2A of Chapter 4 of the Duties Act 1997 (“The Act”) (comprising sections 157A-157C of the Act) concerns acquisitions and holdings of interests in landholders by trustees of bare trusts. Part 2A of Chapter 4 was inserted into the Act by the State Revenue Legislation Further Amendment Act (No 2) 1999 and commenced on 1 December 2009. There have been no amendments to this part of Chapter 4 since it was enacted.
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.
The purpose of this ruling is to provide an overview of the operation of these provisions. The ruling sets out the circumstances in which they may apply but is not exhaustive.
Overview of new provisions
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)).
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.
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).
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)).
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'
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'.
The meaning(s) of the expressions 'bare trust' and 'bare trustee' may vary according to the statutory context.1
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
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 confirmed by the High Court in CGU Insurance Limited v One.Tel Limited (in liq) [2010] HCA 26 at [36] and again in Fischer & ors v Nemeske Pty Ltd & ors (2015-2016) 257 CLR 615 at 653.5 The context of Part 2A of Chapter 4 is consistent with this 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.
A bare trust will usually be an express trust (whether or not in writing). It will generally include (but is not limited to) a trust arising under formal custodial arrangements.
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) 6 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).
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 property7 (being the situation referred to in sec.55 of the Act).
A person who operates a business as trustee for another person or persons cannot accurately be described as a bare trustee.8 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
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).
Paragraph 19 must 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
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.
Acquisition of a significant interest in a landholder upon the establishment of a bare trust
A significant interest in a landholder may be acquired upon the establishment of the bare trust. For example, the trustee of a unit trust or a superannuation fund, which holds (as an asset of that unit trust or superannuation fund) shares or units in a landholder that confer a significant interest in the landholder, might transfer the shares or units to a custodian to hold as bare trustee for the transferor. In this situation, no acquisition statement needs to be lodged. This is because under the bare trust provisions in Part 2A the trustee, rather than the custodian, is the only entity that can make the acquisition. As the trustee already held that significant interest prior to the transfer, and for the purposes of section 157B and 157C, is the entity that would be the acquirer, there is no relevant acquisition and therefore no liability to landholder duty. This is because the trustee has not increased the interest it already held.
Acquisition of a significant interest in a landholder upon the termination of a bare trust
Similar to the situation described in para [20], shares or units representing a significant interest in a landholder might be transferred between the trustee and ultimate beneficial owner of the interest under a bare trust, upon the termination of the bare trust arrangement. For example, in the example given in para [20] above the trustee of the unit trust or superannuation fund (the ultimate beneficial owner of the interest under the bare trust) might elect to terminate the custodial arrangements with the custodian (the legal owner of the interest under the bare trust) and then call for a transfer back of the shares or units representing the significant interest (thereby terminating the bare trust). In this situation, no relevant acquisition is made and no acquisition statement needs to be lodged. This is because the effect of the bare trust provisions is that the transferee (the ultimate beneficial owner of the interest under the bare trust which will be terminated upon registration of the transfer back), rather than the transferor (the legal owner of the interest), is deemed to have always held the interest for the purposes of Chapter 4 of the Act.
Transitional provisions
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.
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
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%).
Footnotes
^Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 283
^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;
^ Dal Pont & Chalmers; Equity and Trusts in Australia (4th edition,2007) at para [21.45] (pp.548-549)
^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)
^ See also Heydon & Leeming; Jacobs’ Law of Trusts in Australia (2006 ed) at para [315] (p.48) and GE Dal Pont; Equity and Trusts in Australia (5th ed) at para [21.415] (pp.619-620)
^ In relation to a unit trust not itself being a bare trust, see MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494 at 502
^Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281
^Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd & ors [2003] WASCA 11 at [57]-[59]