31/08/2011

Recently we have seen several transactions where limited recourse borrowing property transactions may trigger double stamp duty.  We thought it timely to run through some scenario’s to assist you if you are planning a transaction or currently undertaking one.

1. Order of signing the Contract and Holding Trust Deed

In NSW, TAS and the ACT the signing of the holding trust deed must occur after signing the contract for sale.  The reason for this is the holding trust deed which identifies the property to be acquired may be seen as a declaration of trust under the local Duties Act if signed before the contract for sale. 

Ordinarily the same rules would apply in Victoria; however their Duties Act provides a duties exemption for the holding trust deed provided that certain timing requirements are met.

Declarations of trust may have full ad valorem duty imposed under the Duties Act in addition to the full ad valorem duty on the contract for sale (note: ad valorem duty is calculated based on the value of the property).

2. Payments made by third parties towards purchase price

If a member of the fund, or anyone other than the SMSF Trustee, contributes money to the purchase this can create problems later down the track.  After the loan is repaid, the transfer back to the SMSF Trustee is usually eligible for a concession or full exemption from stamp duty.  In order to be eligible for a concession or exemption the Duties Acts generally have conditions which need to be met; the most common being that the SMSF Trustee has contributed and can show that 100% of the purchase price came from the Trustee’s bank account.

One exception to this is if a lender brings a cheque to settlement which is drawn from the Lender’s bank account.  If this loan is documented and executed properly then these funds are seen to be from the SMSF Trustee in accordance with the loan agreement.

3. Name of the Purchaser on the Contract

Generally, in most jurisdictions the titles office is unlikely to register a reference to a trust on the title, so it follows that the purchaser on the Contract should not refer to anything other than the custodian company or the corporate trustee of the holding trust.  So for instance the purchaser should be “Smith Family Properties Pty Ltd ACN 123 456 789”.

Where a contract refers to the custodian “as trustee for the bare trust” or “as trustee for the super fund” the purchaser is not being described accurately.  Only the company name and ACN should be used in the purchaser section as the trust relationship is detailed in the holding trust deed and arises only after settlement when the trust is created through the action of the SMSF paying for the property. 

If the purchaser on the contract refers to  ‘as trustee for’ this may also raise issues about making a declaration of trust and having full ad valorem duty charged on the declaration of trust as well as the contract for sale.

The exception to this is in Western Australia which strictly requires the contract to refer to the purchaser as “Custodian for Trustee”.  The Trustee, or principal of the transaction must be identified for no duty to be charged on the eventual transfer back to the SMSF Trustee.

Please note that each State and Territory has their local stamp duty legislation and the requirements and provisions do vary from state to state.  If you would like to discuss your transaction please contact TOWNSENDS BUSINESS AND CORPORATE LAWYERS on (02) 8296 6222.