Deceased estates
Ruling number
|
DUT 046
|
Tax/benefit
|
Duties
|
Type
|
Exemption/Concession
|
Date issued
|
12 February 2020
|
Issued by
| Stephen R Brady
Chief Commissioner of State Revenue
|
Effective from
|
12 February 2020
|
Effective to
|
-
|
Status
| Current |
Preamble/Background
1. Section 63 of the Duties Act 1997 (‘the Act’) provides concessional duty for transfers of dutiable property by the legal personal representative of a deceased person to a beneficiary.
2. Section 63(1)(a) provides that duty of $50 [1] is chargeable in respect of a transfer of dutiable property by the legal personal representative of a deceased person to a beneficiary, being:
- a transfer made under and in conformity with the trusts contained in the will of the deceased person or arising on an intestacy, or
- a transfer of property, the subject of a trust for sale contained in the will of the deceased person, or
- an appropriation of the property of the deceased person (as referred to in sec.46 of the Trustee Act 1925 (NSW)) in or towards satisfaction of the beneficiary’s entitlement under the trusts contained in the will of the deceased person or arising on intestacy.
3. Section 63(2) of the Act provides that, if a transfer of dutiable property is made by a legal personal representative of a deceased person to a beneficiary under an agreement (whether or not in writing) between the beneficiary and one or more other beneficiaries to vary the trusts contained in the will of a deceased person or arising on intestacy, the dutiable value of the dutiable property is to be reduced by the portion of the dutiable value that is referable to the dutiable property to which the beneficiary had an entitlement arising under the trusts contained in the will or arising on intestacy.
4. Section 63(2A) of the Act provides that a transmission application made by a beneficiary under a will, with the consent of the legal personal representative of a deceased person, is taken to be a transfer of dutiable property by the legal personal representative to the beneficiary.
5. Section 163A(1)(d) exempts an acquisition by a person of an interest in a landholder, if the interest was acquired solely as the result of the distribution of the estate of a deceased person.
6. This ruling explains how section 63 of the Act operates and when the concession applies.
Ruling
A transfer made under and in conformity with the trusts contained in the will of the deceased person or arising on intestacy:
7. The transfer must be made both under and in conformity with the trusts of the will or arising on intestacy. It is not sufficient that the transfer not be inconsistent with those trusts.[2]
8. Where a deed of family arrangement is entered into to vary the trusts of the will or arising on intestacy, a transfer to give effect to that arrangement will not be a transfer under and in conformity with the trusts of the will or arising on intestacy. [3] Duty will be payable in accordance with section 63(2) of the Act, on the difference between the value of the beneficiary’s entitlement to that dutiable property under the will or on intestacy and the dutiable value of that dutiable property.
Example 1
A & B are entitled to the residue of an estate in equal shares
The remainder consists of real property in Gosford & Newcastle
Value of the Gosford property | $2,000,000 |
Value of the Newcastle property | $3,000,000 |
A & B enter into an arrangement under which the Gosford property will be transferred to A and the Newcastle property to B.
As the transfers are not in conformity with the will, section 63(1)(a)(i) will not apply. However, the transfers will qualify for reduced ad valorem duty under section 63(2).
As A is only entitled to one half of the Gosford property under the will, ad valorem duty is payable on one half of the value i.e. on $1,000,000
As B is only entitled to one half of the Newcastle Property under the will, ad valorem duty will be payable on one half of the value i.e. on $1,500,000
Example 2
A & B are entitled to the residue of an estate in equal shares
The remainder consists of one real property, shares in a company and cash
Value of the real property | $2,000,000 |
Value of the shares | $3,000,000 |
Cash | $1,000,000 |
Total value of the remainder is | $6,000,000 |
A & B enter into an arrangement under which the real property and cash will be transferred to A and the shares to B.
As the transfer of the real property to A is not in conformity with the will, section 63(1)(a)(i) will not apply. However, the transfer will qualify for reduced ad valorem duty under section 63(2).
A is entitled to one half of the real property, ad valorem duty is payable on the value of the excess i.e. $1,000,000
Note: Cash and shares are not dutiable property.
9. In example 2 above, if the trustee exercising the power of appropriation, appropriates the specific assets, then section 63(1)(a)(iii) will apply and nominal duty will be payable.
10. In example 2 above, there could be a liability to pay landholder duty under Chapter 4 of the Act, unless an exemption applies. Section 163A(1)(d) of the Act states that an exemption will apply if the interest was acquired solely as the result of the distribution of the estate of a deceased person. If the interest was not acquired solely as a result of the distribution of that part of the deceased’s estate, a liability to landholder duty may apply [4].
11. Section 63(2) of the Act will not apply if there is no agreement (oral or written) between the beneficiary receiving the entitlement and one or more of the other beneficiaries to vary the trusts contained in the will or arising on intestacy.
A transfer of property, the subject of a trust for sale contained in the will of the deceased person:
12. A `trust for sale’ is a direction in the will to the executor to sell the estate property and distribute the proceeds of sale to the beneficiaries. A beneficiary under a trust for sale of land has no beneficial interest in the land itself. Sometimes the beneficiaries and the executor agree not to sell the trust property. Instead, they may agree to distribute in specie to the beneficiaries in accordance with the proportions to which they are entitled under the will to the net proceeds of sale.
13. Duty of $50 is payable on a transfer of dutiable property the subject of a trust for sale when the beneficiaries under the trust for sale choose to take a transfer of the property in proportion to their beneficial entitlements instead of the proceeds of its sale.
An appropriation of the property of the deceased person (as referred to in sec.46 of the Trustee Act 1925 (NSW)) in or towards satisfaction of the beneficiaries’ entitlement under the trusts contained in the will of the deceased person or arising on intestacy:
14. Sec.46(1) of the Trustee Act 1925 (NSW) provides that a trustee may appropriate any part of the property subject to the trust or of the real or personal estate of a testator or intestate in the actual condition or state of investment thereof in or towards (but not in excess of) satisfaction of a legacy or of any share or interest in the property or estate as the trustee may deem just and reasonable according to the respective rights of the persons interested in the property or estate. The power of appropriation extends to an appropriation of estate property made by the executor or administrator of a deceased estate in accordance with the will or rules of intestacy [5]. Under section 63(1)(a)(iii) of the Act, duty of $50 is chargeable if the transfer of dutiable property occurs as the result of an appropriation in or towards satisfaction of the beneficiaries’ entitlement.
Example 3
A & B are entitled to the residue of an estate in equal shares
The residue consists of two real properties, shares and cash
Value of real property 1 | $450,000 |
Value of real property 2 | $350,000 |
Value of the shares and cash | $200,000 |
Total value of the estate is | $1,000,000 |
The legal personal representative appropriates the assets so that
A receives real property 1 valued at | $450,000 |
B receives real property 2 valued at | $350,000 |
The balance of the residue is divided
A receives (cash & shares) valued at | $ 50,000 |
B receives (cash & shares) valued | $150,000 |
A & B each receives $ 500,000 (an amount equal to one half of the value of the estate)
Each real property transfer will be liable to nominal duty of $50 under section 63(1)(a)(iii).
15. An appropriation under the Trustee Act 1925 is subject to a number of conditions. The first two of these are:
- No appropriation is to be made so as to affect prejudicially any specific gift, devise or bequest. Accordingly, in the case of a testate estate the legal personal representative cannot appropriate property that has been specifically gifted to someone else [6]
Example 4
A parcel of land is devised to A
Residue of the estate is left to B & C in equal shares.
The legal personal representative cannot appropriate the land specifically devised to A towards the entitlement to the residue of either B or C.
Example 5
The whole estate is left to A, B & C in equal shares.
The legal personal representative can appropriate any estate realty towards the entitlement of any one or more of A, B & C.
2. The appropriation must be made with the consent required by section 46(1)(b) of the Trustee Act 1925 (NSW). In this regard, section 46(5) of the Trustee Act 1925 (NSW) provides that an appropriation shall not be made for the benefit of a person absolutely and beneficially entitled in possession, unless that person is at least 18 years old and has consented in writing to the appropriation. It is not necessary to obtain the consent of any other person.
Note: The parent or guardian of a minor, and the Supreme Court can provide consent for incapacitated persons and persons who cannot be found at the relevant time: s 46(7) of the Trustee Act 1925
16. Section 63(1)(a)(iii) will not apply:
- to an appropriation that results in a beneficiary receiving more than their entitlement under the trusts contained in a will or arising on intestacy;
- if there is an arrangement to vary the trusts under the will or arising on intestacy where the variation is other than pursuant to a power of appropriation.
Example 6
A & B are entitled to the residuary estate in equal shares comprising real property at Wollongong & Mittagong
Value of the Wollongong property | $1,200,000 |
Value of the Mittagong property | $1,000,000 |
The legal personal representative appropriates the assets so that
A receives the Wollongong property | $1,200,000 |
B receives the Mittagong property | $1,000,000 |
Total value of the properties | $2,200,000 |
A & B are entitled to receive half the value | $1,100,000 |
The transfer to A does not satisfy section 63(1)(a)(iii) because A receives more than their entitlement, the transfer would be liable to ad valorem duty calculated on $600,000 (the value of the excess in that property received) under section 63(2).
The transfer to B would be an appropriation in or towards satisfaction of the beneficiary’s entitlement and would be liable to duty of $50.00 under section 63(1)(a)(iii)
Section 63(2) of the Act
17. If the transfer of dutiable property is made by a legal personal representative of a deceased person to a beneficiary under an agreement (whether or not in writing) between the beneficiary and one or more other beneficiaries to vary the trusts contained in the will of the deceased person or arising on intestacy, the dutiable value of the dutiable property is to be reduced by the portion of the dutiable value of the dutiable property to which the beneficiary had an entitlement arising under the trusts contained in the will or arising on intestacy.
18. Section 63(2) requires the reduction in the dutiable value of the dutiable property to be based on the proportion of the particular beneficiary’s entitlement “arising under the trusts contained in the will”. It does not require the value of the estate as a whole be included in the calculation [7] (see example1).
Transmission application
19. Sec.63(2A) of the Act provides that a transmission application made by a beneficiary under a will, with the consent of the legal personal representative of a deceased person, is taken to be a transfer of dutiable property by the legal personal representative. That includes a transmission application by a devisee who is also the sole legal personal representative. If it is under and in conformity with the trusts contained in the will, it is liable to duty of $50 under Sec. 63(1).
20. If the applicant under the transmission application is the legal personal representative of the deceased but not a beneficiary, no duty is payable and no stamping is required.
Declarations of trust
21. If the declaration of trust is by the executor of a will under section 11 of the Trustee Act 1925 and if the Chief Commissioner is satisfied that it is consistent with the entitlements of the beneficiaries, the declaration will fall within section 63 of the Act.
Family provision order
22. Sec.72 of the Succession Act 2006 states that a family provision order made under that Act takes effect as a codicil to a will of the deceased person. If the deceased died intestate, the order is the will of the deceased person. Nominal duty of $50 under sec. 63 of the Act extends to property transferred pursuant to such order. However, if the court orders that the summons be dismissed, then there is no family provision order to act as codicil or will.
Vesting
23. Under sec. 66(1)(e) of the Succession Act 2006, the court may make orders for the purposes of giving effect to a family provisions order for the vesting in any person of property of the estate. A vesting of dutiable property by or as a consequence of an order of a court is dutiable transaction under sec. 8(1)(b)(v) of the Act.
24. In Vukic: Estate of Grbin v Grbin (2006) NSWSC41, it was held that a vesting order under the Family Provision Act 1982 (superseded by the Succession Act 2006) has the same effect as a transfer of dutiable property by the legal personal representative of the deceased to a beneficiary for the purposes of Section 63 of the Act. Accordingly, section 63 of the Act will apply to a vesting of property as a result of an order under the Succession Act 2006.
25. Section 8(1)(b)(vii) provides that a vesting of land in NSW by statute law is also a dutiable transaction. Section 44 of the Probate and Administration Act1898 vests real and personal property in the legal personal representative upon the grant of probate or administration. Section 65(12) of the Act provides that no duty is chargeable under Chapter 2 on the vesting of dutiable property in the legal personal representative.
Power of appropriation
26. If the will gives the legal personal representative the power to appropriate, any transaction effected pursuant to that power will be liable to duty of $50 under section 63(1)(a)(i).
Agreements for sale or transfer
27. Section 63 does not extend to agreements for sale or transfer. If a legal personal representative enters into a contract with a beneficiary, the contract will be liable to ad valorem duty on the higher of the consideration or value of the dutiable property the subject of the contract.
Option to purchase
28. Where an option to purchase dutiable property is granted by the testator in the will (testamentary option), any transfer of land from the legal personal representative to the donee of the option following the exercise of the option would be a transfer of dutiable property by the legal personal representative of a deceased person to a beneficiary. It is a transfer made under and in conformity with the trusts contained in the will of the deceased person within the meaning of section 63(1)(a)(i) of the Act and therefore liable to concessional duty of $50. If the exercise of the option is not strictly in accordance with the will, the concession will not apply.
29. The nature of a testamentary option was analysed by the High Court in O’Neill v O’Connell (1945-1946) 72 CLR 101 where in the ordinary case of a testamentary option, the donee’s exercise of the option, does not give rise to any contract for sale of the subject property between the testator and the donee. The Act will be administered on the basis that:
- the section 63 concessional duty of $50 will apply to a transfer of dutiable property upon the exercise of a testamentary option to purchase, provided no written agreement for sale or transfer is entered into, and
- no duty will be payable on any written notice of exercise of option.
Testamentary trusts
30. Often a will may establish a trust with a named trustee and beneficiaries, with a gift to the trustee of that trust. A transfer from the legal personal representative to a beneficiary of the testamentary trust will not obtain the benefit of the section 63 concession, however, a transfer to the trustee of the testamentary trust[ii] will be liable to duty of $50 under section 63(1)(a)(i).
Note: For surcharge purchaser duty please see revenue ruling G 010v2.
- From 1 February 2024 the fixed duty amount of $50 is increased to $100
- Sanders v Chief Commissioner of State Revenue [2003] NSWADTAP 22
- Shipard v Chief Commissioner of State Revenue (2006) 64 ATR 272
- Section 63(1)(a)(i) of the Act
- Section 46(1)(a) of the Trustee Act 1925
- Alexander v Chief Commissioner of State Revenue [2017] NSWCATAD 180
- Shipard v Chief Commissioner of State Revenue [2006] NSWADT 254.