NSW Duties Act changes ‘a potential minefield’ for SMSFs
Recent amendments made to the NSW Duties Act could create headaches for SMSFs holding real estate in NSW, a law firm has warned.
Last month, the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 received assent on 19 May 2022, which includes changes to the Duties Act 1997.
The NSW government has released a guide on the new legislation which explains how the amendments impact duties transactions.
One amendment charges duty on the making of a statement “that 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”, according to the guide.
“For the purpose of charging the duty the making of the statement is taken to be a declaration of trust over dutiable property and, accordingly, is a dutiable transaction.”
In a recent article, Townsends Business and Corporate Lawyers principal Peter Townsend warned that this amendment may impact both SMSFs and family trusts that own property in NSW.
Mr Townsend explained that the land titles registration service in NSW responsible for administering the land titles register has the same policy as its public predecessor in refusing to register a trust on the land titles register.
“If your SMSF owns real estate the title only shows the name of the trustee of the SMSF not the fund itself. What happens if it becomes necessary to prove to a third party, [such as] a bank, the ATO, family court, or creditor, that the trustee is in fact holding the property on trust for the fund?”
A previous approach to this, said Mr Townsend, was to put in place an ‘Acknowledgement of Trust’ — a document which created no new legal or equitable rights but simply acknowledged an existing trust.
“This now seems to be dutiable in NSW, with the person making the statement liable to pay duty on the dutiable value of the property,” he warned.
Mr Townsend noted that this recent legislative change follows decisions like Chief Commissioner of State Revenue v Benidorm Pty Ltd , where the Court of Appeal unanimously held that a document which does not effect a transaction, but merely acknowledges an existing legal position, is not liable to duty under the Act.
“It is not yet clear how these provisions will affect various legal documents in practice, however given the various acknowledgements of existing trusts in many legal documents it has the potential to be a minefield,” he cautioned.
Following this change, SMSF clients will need to ensure they have the necessary compliance documents to prove that the registered proprietor of the land is holding that land on trust for the SMSF, he said.
These documents, he said, include resolutions of the fund trustee; resolutions of the fund members; bank statements showing that all the purchase money came from the fund, and all the records of the transaction such as contracts, correspondence, legal files, and duty payments.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.