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Assessing transfer duty for the establishment of a trust
Learn how to assess a declaration of trust relating to unidentified or non-dutiable property and see examples of how Section 58 of the Duties Act is applied.
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Declaration of trust relating to non-dutiable property
Under section 58(1) of the Duties Act1997, the instrument declaring the trust is liable to duty in New South Wales in the following instances:
the document has been executed in NSW, and
the declaration is over NSW property, none of which is dutiable property. For a full list of dutiable property refer to section 11 of the Act.
Typically, non-dutiable property is described in the trust document as a settled sum, usually an amount of money, and is considered NSW property if it is held in a NSW bank account.
Below are some examples of a declaration of trust over non dutiable property.
Example of an instrument declaring a trust over non-dutiable property
This deed is made on xx/xx/xxxx
Between: The Settlor
And: The Trustee
Recitals:
The Settlor intends by this Deed to establish a trust to be applied and administered for the benefit of the Beneficiaries.
The Settlor has paid, or will pay, the Settlement Sum to the Trustee and the Trustee has consented to hold the Trust Fund upon the terms contained in this Deed.
The Trust constituted by this Deed will be known by the name in Item 6 in the Schedule.
Example of a schedule in an instrument declaring a trust over non-dutiable property
SCHEDULE
Date of making this deed: xx/xx/xxxx
The Settlor: Person A
The Trustee: AAABBBCCC Pty Ltd
The Settled Sum or Property: $10.00
Vesting Date: The last day of the Perpetuity Period applicable to this Deed
Example of an instrument declaring a trust over non-dutiable property
This deed of trust is made on xx/xx/xxxx
Between: The Party described in Item 2 of the Schedule to this Deed of the one part (“the Trustee”)
And: The Party described in Item 1 of the schedule of this Deed - Person A (“the initial unitholder”)
Recitals:
Person A is the initial unit holder.
The initial unit holders as set out above and more particularly described in Item 1 of Schedule A has requested the Trustee to act, and the Trustee has agreed to that request, to act as Trustee of the Trust constituted by this Deed.
The initial unit holders have agreed to take up the number of units set out in item 3 of Schedule A and have each paid or shall pay on execution of this Deed in respect of the units the amounts per unit and set out in Item 3 of Schedule A.
Example of a schedule in an instrument declaring a trust over non dutiable property
SCHEDULE A
Item 1
Initial Unitholders – Person A
Item 2
Trustee – Trustee A
Item 3
Initial Unit Capital -
10,000 ordinary units of $1.00 each (income, capital and voting rights) 10,000 preference units of $1.00 each.
Declaration of trust relating to unidentified property
Under section 58(2) of the Duties Act 1997, the instrument declaring the trust is liable to duty in NSW if the instrument is executed in NSW and establishes a trust over unidentified property. For example, the trust is established to acquire, secure or hold monies or documents.
An instrument is taken to be executed or signed in NSW when the instrument is physically signed in NSW i.e. wet signature.
If the instrument is electronically signed under the Electronic Transactions Act 2000, under section 58(2A) of the Duties Act 1997, it is taken to have been executed in New South Wales if -
for a trustee of the trust that is a corporation—the trustee’s registered office or principal place of business is in New South Wales, or
for a trustee of the trust that has an ABN—the trustee’s registered business address is in New South Wales, or
otherwise—the principal place of residence of the trustee of the trust is in New South Wales.
In the following circumstances, the trust deed is not subject to NSW duty:
A declaration of trust over marketable securities (shares)
Under section 58(6) of the Duties Act 1997 a declaration of trust over marketable securities is not dutiable if the marketable security is not dutiable property.
Ad valorem duty may be payable if the marketable securities are considered dutiable property in the following circumstances:
Fixed duty under section 58 of the Duties Act 1997 only applies to a declaration of trust relating to non-dutiable and unidentified property.
A declaration of trust over dutiable property is a dutiable transaction as defined under section 8 and section 11 of the Duties Act 1997 and may be liable to ad valorem duty. It does not matter if the dutiable property is not vested in the person declaring the trust at the time the trust is declared.
Dutiable property is typically identified in the document as a Lot and SP/DP, or a property address.
Below is an example of dutiable property contained in a declaration of trust
SCHEDULE
Date of making this deed: xx/xx/xxxx
The Settlor: Person A
The Trust: AAABBBCCC Pty Ltd
Trust Property: 110 Sample Street, Sydney NSW, 2000 DP 1/2345
Vesting Date: The last day of the Perpetuity Period applicable to this deed
The Superannuation Industry (Supervision) Act 1993 (SIS Act), under section 67A, allows trustees of complying self-managed super funds (SMSF) to take out loans to purchase investment properties for the fund but only if the property is being held in trust by a third party (often referred to as a custodian or bare trustee).
The trust document that is set up to formalise the arrangement is often referred to as a bare trust, custodian trust deed or instalment warrant.
These transactions may be eligible for a fixed rate of duty pursuant to the requirements of section 62B of the Duties Act 1997 and must not be processed under the document type ‘Trust Deed’.
