The recent AAT decision in the case of Bendel and Commissioner of Taxation  AATA 3074 is in stark contrast to the ATOs longstanding position that an unpaid present entitlement of a corporate beneficiary constitutes the ‘provision of financial accommodation’ by the company to the distributing trust. […]
Where the duty lies when establishing trusts
Emily Pritchard, current as of: 2 August 2022.
Even our major banks and large national law firms aren’t immune to confusion when it comes to understanding which State laws are relevant to the imposition of duty on the establishment of trusts.
Any duty on the establishment of a trust is almost always determined by where the trust deed is signed. The Jurisdiction of the trust has no impact on duty that may or may not be payable on the establishment of a trust.
As the name suggests, the Place of Settlement of a trust is the place in which it is settled or established. Most modern trust deeds also elect to adopt the laws of a specified State as the Jurisdiction of the trust, meaning these are the laws which determine any disputes between the Trustee and beneficiaries. We regularly have the opportunity to make this exact distinction between Place of Establishment and Jurisdiction when talking to law firms about duty requirements.
It is important to understand, however, that Jurisdiction cannot affect the Place of Establishment of the trust, which is all that is relevant to the imposition of duty on the trust’s establishment.
When the big guys get it wrong
Here’s what happened on one occasion:
- We were contacted by a national law firm in relation to an Acis trust deed.
- The firm was acting for a bank regarding a trust deed that had been wholly executed in Queensland, meaning the Place of Establishment was Queensland.
- The Jurisdiction of the trust was Victoria.
- The firm insisted that the trust deed either be stamped in Victoria or that a letter of exemption from stamping be obtained from the Victorian Office of State Revenue.
- We explained that any liability for duty arising from the establishment of the trust was determined by the State legislation applicable to the Place of Settlement.
- Given the trust deed had been wholly executed in Queensland, our position was that only the Queensland Duties Act was relevant to the imposition of duty on the trust’s establishment.
- Ultimately, the law firm in question conceded that the trust did not require stamping in Victoria, nor did a letter of exemption need to be obtained.
In another matter, a long term client was purchasing trusts from us that were being wholly executed in Queensland. Because our client was based in Victoria, they were submitting these trusts to the Victorian Office of State Revenue for stamping and paying stamp duty of $200 on the establishment of those trusts based on Victorian law.
The reality is however, that because the trusts were established/wholly executed in Queensland, duty on their establishment was based solely on the Queensland Duties Act, and should have been nil. The $200 in each case was being outlayed unnecessarily.
It is important to note that, once established, a trust may commence operations in any Australian jurisdiction, and in doing so may acquire assets and be liable to pay duty. The trust will pay duty on any acquisition of dutiable property, usually based on the State in which the transaction takes place, or where the asset is situated, again, regardless of the Jurisdiction of the Trust.