By Jinny Chaimungkalanont and Mark Peters
Revenue NSW has now published its long-awaited Revenue Ruling on declarations and acknowledgments of trust in light of the 19 May 2022 stamp duty reforms (see our notes on those reforms here). Although housed in the longstanding Revenue Ruling DUT031 Declaration of trust in an agreement for sale, that ruling now has implications much broader than its title.
Usefully, the Ruling provides some clarity on wording which will and will not be considered to be a dutiable acknowledgement of trust, and illustrates some key areas which will be the focus of Revenue NSW.
It is important to keep in mind that an acknowledgment of trust issue can arise whenever trustees and custodians are involved, so it is critical that professional trustees / custodians, and those relying on their services, are aware of the changes and the scenarios which could expose the trust fund to an unnecessary stamp duty expense.
Acknowledgment of Trust: Refresher
In Chief Commissioner of State Revenue v Benidorm Pty Ltd, the New South Wales Court of Appeal held that in order for a declaration of trust over dutiable property to give rise to ad valorem duty it must actually effect a transaction, and not merely acknowledge an existing state of affairs. This was said to be consistent with the change in legislative policy behind the introduction of the modern NSW Duties Act which marked a shift from stamp duty being a tax on transactions rather than a tax on instruments.
The 19 May amendments reversed the effect of this decision and made clear that, at least in the context of declarations of trust, stamp duty remains an instruments tax.
Key Takeaways and Examples
- A statement which has the following characteristics will give rise to ad valorem stamp duty at rates up to 5.5% (general rates) on the value of the NSW dutiable property the subject of the statement (even when duty has already been paid on the acquisition of the property by the trustee). The statement must:
- purport to be a declaration of trust over NSW dutiable property; but
- merely have the effect of acknowledging that identified NSW dutiable property vested, or to be vested, in the person making the statement is already held, or is to be held, in trust for a person or purpose mentioned in the statement.
For example, ABC Pty Ltd holds the land in NSW known as Sheppard’s Stumble on trust for XYZ Pty Ltd. ABC Pty Ltd enters into a transaction on behalf of XYZ Pty Ltd and as part of this it makes a statement acknowledging that ABC Pty Ltd as trustee acquired the property for XYZ Pty Ltd as beneficiary.
The statement is liable to ad valorem duty as an acknowledgement of trust.
Examples of what capacity description to use:
The Revenue Ruling confirms that:
- where a trustee of a pre-existing trust describes themselves in a statement which identifies dutiable trust property in one of the following ways ad valorem duty will not be payable:
- as trustee
- as trustee for the estate of a named person
- as trustee for a named trust
- as trustee for a named superannuation fund
For example, ABC Pty Ltd holds land in NSW known as Sheppard’s Stumble on trust for XYZ Pty Ltd. ABC Pty Ltd enters into a transaction on behalf of XYZ Pty Ltd and as part of this it makes a statement which identifies the land held on trust but ABC Pty Ltd describes itself as acting in its capacity as trustee of the Sheppard’s Mess Trust.
The statement is not liable to ad valorem duty as an acknowledgement of trust as the beneficiary of the trust is not identified and it is merely descriptive of the person’s capacity as trustee.
- where a custodian for the trustee of trust describes themselves in a statement which identifies dutiable trust property in one of the following ways ad valorem duty will not be payable:
- as custodian for the trustee for the estate of a named person
- as custodian for the trustee for a named trust
- as custodian for the trustee for a named superannuation fund
- as custodian for the trustee for a company to be formed or incorporated.
For example, ABC Pty Ltd holds land in NSW known as Sheppard’s Stumble as custodian for the trustee of XYZ Superannuation Fund. ABC Pty Ltd enters into a transaction on behalf of XYZ Pty Ltd and as part of this it makes a statement which identifies the land held on trust but ABC Pty Ltd describes itself as acting in its capacity as custodian for the trustee for XYZ Superannuation Fund.
The statement is not liable to ad valorem duty as an acknowledgement of trust as the ultimate beneficiaries of the trust are not identified and it is merely descriptive of the person’s capacity as custodian.
- using capacity descriptions for trustees or custodians which depart from the above forms generate significant stamp duty risk and may have the unintended outcome of Revenue NSW imposing ad valorem In our view, taxpayers should use the wording approved by Revenue NSW unless they obtain specific duty advice.
Examples of what capacity description not to use:
- The Revenue Ruling also confirms that Revenue NSW will seek to levy duty where a trustee / custodian uses one of the following forms of capacity description (these are by no means exhaustive) in a statement in respect of dutiable trust property which it holds on trust:
- as trustee for a named person or persons
- as trustee for a named class of persons (for example, ‘the children of X’, or ‘the beneficiaries of the XYZ Trust’)
- as trustee for a named corporate body
- as trustee for a named unincorporated body
- as custodian for the trustee for a named person or persons
- as custodian for the trustee for a named class of persons
- as custodian for XYZ as trustee for a named corporate body
- as XYZ as custodian for ABC Pty Ltd as trustee for a named unincorporated body.
The critical feature in each of these examples is the specific disclosure of the identity of the underlying beneficiary of the trust, which places the wording on a different footing to the permitted wording considered above where in each case the ultimate “beneficiary” identified does not have legal personhood.
Risk areas and Concessions
- Trustees must be particularly careful in executing any document that contains wording capable of being construed as a declaration of trust, even if the relevant trust is already constituted. The risk associated with triggering duty on an acknowledgement of trust is likely to be greatest for the following transactions:
- contracts for the sale of land where the purchaser is described as acting in a trustee capacity;
- amending existing trust deeds or restating existing trusts; and
- any transaction which involves the trustee / custodian of NSW dutiable property disclosing their trustee capacity in a transaction document, which also describes the trust property and the beneficiaries of the trust.
- Although Revenue NSW has helpfully noted that “a typical limitation of liability clause would also not generally be a declaration of trust”, care should be taken with limitation of liability clauses to ensure that the form of capacity description of the trustee / custodian does not have the characteristics of a dutiable acknowledgment of trust.
- The Revenue Ruling indicates that, generally, documents such as statements and statutory declarations requested by Revenue NSW or other government bodies may not be liable as a declaration or acknowledgement of trust. However, the foundation for this is not clear if all other indicia is met so again, careful drafting is important to ensure that in meeting other statutory obligations, a duty liability does not inadvertently arise.
- Existing apparent purchaser concessions (i.e. resulting trust concessions) under the NSW Duties Act which reduce the duty payable on a declaration of trust to $50 (rather than ad valorem) continue to apply to acknowledgments of trust. However, these concessions are applied strictly and evidence of required funds flow is critical to prove that the apparent purchaser / beneficiary under the resulting trust provided all the funds for the purchase of the dutiable property (see the Commissioner’s ruling on this exemption here).
 Chief Commissioner of State Revenue v Benidorm Pty Ltd (2020) 101 NSWLR 729;  NSWCA 28 at , , -,  (Leeming JA; Meagher JA agreeing) and  (Payne JA).
 Chief Commissioner of State Revenue v Benidorm Pty Ltd (2020) 101 NSWLR 729;  NSWCA 28 at  (Leeming JA; Meagher JA agreeing) and - (Payne JA). Compare, for example, DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 449 (Mason J).
 It remains unclear what “purports to be declaration of trust” means and whether it invites interrogation of the (presumably) objective intention of the person “making [the] statement” or whether the inquiry is confined to the effectiveness of the words to be a “declaration of trust” (as that is understood post Chief Commissioner of State Revenue v Benidorm Pty Ltd).
 Noting that the beneficiary of the custodial trust is disclosed (i.e. the trustee of the relevant trust for which the custodian is acting as custodian).