On 20 January 2022, VCAT held that a farm transferred, from an individual, to a wholly owned company, on trust for the trustee of the farmer’s self-managed superannuation fund (SMSF), was subject to land transfer duty and was not eligible for the duty exemption in s56 of the Duties Act 2000 (Vic).

The situation, was this.

  • The farmer (Mr Osborne) transferred a parcel of faming land to the applicant (ANO Property Pty Ltd) to be held as trustee of a fixed property trust (the Property Trust).
  • The sole beneficiary of the fixed trust is ANO Enterprises Pty Ltd as trustee for the farmer’s single-member SMSF. The SMSF trustee had made ‘binding death benefit nominations’ (BDBN‘s) in favour of Mr Osborne’s daughters.
  • The Commissioner of State Revenue assessed the applicant to duty of $14,270 on the transfer.

The Applicant’s primary contentions were (para 6):

  • The Transfer is exempt from duty under the exemption for transfers of farms between relatives (Family Farm Exemption) in section 56 of the Duties Act 2000 (Vic) (Duties Act).
  • Alternatively, the Applicant submits that, having regard to Mr Osborne’s intention, the Commissioner has and should exercise the ‘wriggle room’ he has to give effect to the purpose of the Family Farm Exemption (ie. even if all of the requirements of section 56 are not satisfied).

The Tribunal’s decision

  1. The Tribunal upheld the stamp duty assessment after finding that the transfer was not exempt from duty under the exemption for transfers of farms between relatives (Family Farm Exemption) in s56 of the Duties Act 2000 (Vic).
  2. The Tribunal noted that s 56 allows for a transfer from a natural person (such as Mr Osborne) to the trustee of a trust (such as the applicant) but there are specific requirements which depend on the nature of the trust involved.
  3. The relevant transferee trust was the Property Trust (not the SMSF).
  4. It followed that the it was the beneficiaries of the Property Trust, that were relevant (and not those of the SMSF’s, which could have included Mr. Osborne’s daughters – under the BDBN’s
  5. Although the applicant was the trustee of a fixed trust, the beneficiary was the trustee of the SMSF, it was not one of the ‘present or future relatives’ of Mr. Osborne as s56(3) required.
  6. There was no ‘wriggle room’ for either the Commissioner or VCAT, as the Applicant had contended (in other word’s he couldn’t rely on ‘The Castle’s’ famous “It’s the ‘vibe’ Your Honour’). It was not enough that his purposes, were those that motivated the exemption from duty (to keep farms in the family – he also had to do it, in conformity with the particular terms, which Parliament had used, to give effect to that objective.

Section 56 is extracted below.

The Tribunal’s reasoning on the applicability of the s56 exemption (extracted below) can be seen from the following passage from its reasoning.

[27]   Section 56 sets out the requirements that must be met in order for a transfer to benefit from the Family Farm Exemption. While the section allows for a transfer from a natural person (such as Mr Osborne) to the trustee of a trust (such as the Applicant), there are specific requirements required to be met, which depend on the nature of the trust involved.

[28]   The Property Trust Deed provides that the Applicant:(a)

(a)   holds the ‘Trust Estate’ (defined to include the Relevant Property) ‘upon trust for [ANO Enterprises as trustee of the SMSF] as and from the date of the registration of the [Applicant] as registered proprietor of the [Relevant Property]’; and

(b)  must transfer the Relevant Property to ANO Enterprises on request, although ANO Enterprises is obliged to extinguish any ‘borrowing obligation’ prior to any such transfer.

[29]   It is clear that the Property Trust is a ‘fixed trust’ as defined in section 56(4), namely a ‘trust under which the identity of the beneficiaries and the quantum of their interests are ascertained’. In this regard, the sole beneficiary of the Property Trust is ANO Enterprises (in its capacity as trustee of the SMSF) and so its quantum of interest is 100%.

[30]   Relevantly, the Property Trust Deed does not contain any discretions which may be exercised by the Applicant, as trustee of the Property Trust, to affect the identity of the beneficiary of the trust or the quantum of the interest held by ANO Enterprises. It follows that the Property Trust is not a discretionary trust as defined in section 3.

[31]   Although it is contemplated that the Relevant Property will ultimately vest in ANO Enterprises and be held for the members of the SMSF, the ‘fixed trust’ that needs to be considered for the purposes of section 56(3)(b) is the Property Trust (and its beneficiaries), not the SMSF (and its beneficiaries).

[32]   While ANO Enterprises is controlled by Mr Osborne, it cannot be his ‘relative’ given that a relative is defined in section 3 in terms which only apply to other natural persons, such as Mr Osborne’s daughters.

[33]   Nor is ANO Enterprises a charitable institution within the definition of that term in section 56(4), as ANO Enterprises is not ‘a corporation … for charitable purposes’. Rather, ANO Enterprises acts as trustee of the SMSF, a private superannuation fund established to provide superannuation benefits to its members.

[34]   As the requirements of section 56 are not satisfied, it cannot apply to exempt the Transfer from duty.

(ANO Property Pty Ltd v Comr of State Revenue (Review and Regulation) [2022] VCAT 71, Tang M, 20 January 2022.) [LTN 19, 1/2/22]

[Tax Month – January 2022 – Previous 2021] 2.2.22

 

DUTIES ACT 2000 – SECT 56

Transfers of farms to relatives or charities

 (1)     No duty is chargeable under this Chapter in respect of a transfer of dutiable property if the Commissioner is satisfied that—

        (a)     the dutiable property is an estate in fee simple, life estate or estate in remainder in land referred to in section 65, 66 or 67 of the Land Tax Act 2005 ; and

        (b)     the transferor is a person referred to in subsection (2); and

        (c)     the transferee is a person referred to in subsection (3); and

        (d)     the transfer does not arise from arrangements or a scheme devised for the principal purpose of taking advantage of the benefit of this section.

 (2)     The transferor must be—

        (a)     a natural person; or

        (b)     a trustee for a natural person; or

        (c)     a company (not acting in the capacity of trustee under a trust) all the shares in which are owned by natural persons who are relatives of each other; or

        (d)     a trustee under—

              (i)     a discretionary trust, the capital beneficiaries of which are limited to natural persons who are relativesof each other; or

              (ii)     a fixed trust, the beneficiaries of which are limited to natural persons who are relatives of each other.

 (3)     The transferee must be—

        (a)     a relative of a natural person referred to in subsection (2); or

        (b)     a trustee under a fixed trust, the beneficiaries of which are limited to—

              (i)     a present or future relative of a natural person referred to in subsection (2); or

              (ii)     a charitable institution; or

              (iii)     a present or future relative of a natural person referred to in subsection (2) and a charitable institution; or

              (iv)     a present or future relative of a natural person referred to in subsection (2) and a natural person referred to in subsection (2); or

              (v)     a charitable institution and a natural person referred to in subsection (2); or

              (vi)     a present or future relative of a natural person referred to in subsection (2), a natural person referred to in subsection (2) and a charitable institution; or

(c)     a trustee under a discretionary trust the terms of which do not allow the distribution of the whole or any part of the capital of the trust that comprises land referred to in section 65, 66 or 67 of the Land Tax Act 2005 to any person or body other than a person or body referred to in paragraph (b); or

        (d)     a natural person referred to in subsection (2)(c) or (2)(d).

(4)     In this section—

“capital beneficiary” of a discretionary trust means a person, or a member of a class of person, in whom, by the terms of the trust, the whole or any part of the capital of the trust estate may be vested or remain vested—

(a)     in the event of the exercise of a power or discretion in favour of the person (whether or not that power is presently exercisable); or

(b)     in the event that a discretion conferred under the trust is not exercised;

“charitable institution” means a corporation or body of persons associated for charitable purposes;

“fixed trust” means a trust under which the identity of the beneficiaries and the quantum of their interests are ascertained.

 

 

Category: Tax Month - January 2021

Author: John Morgan

John Morgan is a tax specialist lawyer of more than three decades experience now practicing at the Victorian Bar - w: www.FJMtax.com e: f.john.morgan@vicbar.com.au