A transfer of land was not exempt because it did not rectify the consequences of fraudulent conduct.
Mr and Mrs R were the registered proprietors of land at Galston. The properties were mortgaged to a bank and they were in danger of losing them. In 2012 a financial adviser organised for the properties to be transferred to a company (Pineview) using 2 short-term loans, on the understanding that the property would be held on trust for Mr and Mrs R. The company was able to borrow funds from the bank to repay the short-term loans. However, it borrowed significantly more than required and the additional funds were “diverted into the pocket of” the financial adviser. In addition, one of the short-term loans (for $570,000) was not repaid.
Following court proceedings in which Pineview recovered amounts from the financial adviser and his companies, the properties were transferred in November 2016 to a newly formed trust (the R Family Trust). The trustee was assessed to duty on the unencumbered value of the properties. However, it claimed that the transfer should be liable to only $50 duty pursuant to s 54(3) of the Duties Act 1997 (which deals with transfers to a new trustee on the retirement of a trustee, or the appointment of a new trustee), or alternatively that the transfer should be exempt from duty under s65(24)(a) (which deals with transfers to rectify the consequences of fraudulent conduct).
The trustee failed on both counts:
- although Pineview held the properties on trust for Mr and Mrs R, there was no evidence a family trust was created in 2012. Accordingly, the transfer in 2016 was not a transfer to a substitute trustee of the same trust; and
- the transfer was not to rectify fraudulent conduct as the transfer in 2012 to Pineview was not fraudulent. The fraudulent conduct was the excessive borrowing for the benefit of the financial adviser. The transfer did not rectify that.
(Rubino Investments Pty Ltd as trustee for the Rubino Family Trust v Chief Commissioner of State Revenue (NSW)  NSWCATAD 133, Hamilton SM, 27 June 2018.)
[LTN 124, 2/7/18; Tax Month – July 2018]
Comprehension questions (answers available)
- Was the relevant transfer from Mr & Mrs R, to Pineview as trustee for Mr & Mrs R?
- Did the taxpayer make out his case that this was just the transfer to a new trustee of the family trust?
- Was the transfer exempt in that it was to rectify fraudulent conduct?