NSW Transfer Duty – Rubino Investments P/L as trustee for the Rubino Family Trust v CCSR  NSWCATAD 133 (Rubino Investments)
In Rubino Investments, the appeal panel of the NSW Civil and Administrative Tribunal (Tribunal) dismissed the Taxpayer’s application to appeal a decision by the Chief Commissioner of State Revenue (Commissioner) imposing the full rate of stamp duty on the transfer of two properties in New South Wales under the Duties Act 1997 (NSW) (Act).
Taxpayers should be mindful of the fact that where they are seeking to rely on the concessional treatment of transfers of dutiable property from one trustee to another, the relevant trust must have already been in existence prior to the first trustee obtaining legal title. Furthermore, the beneficial ownership of the trust property must not change as a result of the transfer such that the trust would be taken to be a different trust for the purposes of section 54(3) of the Act.
This case also confirms that there must be a clear nexus between the transfer and the remedying of fraudulent conduct for the transfer to be exempt from stamp duty under section 65(24)(a) of the Act. It is not enough that some other unrelated instance of fraud has occurred in relation to the dutiable property.
By way of background, the Rubino family had previously been involved in litigation concerning the properties, during which they unsuccessfully claimed that the initial transfer of the properties to the previous legal owner, Pineview Property Holdings Pty Ltd (Pineview), was fraudulent.
Following the conclusion of the previous litigation, the properties had been transferred to a newly formed trust estate, Rubino Investments Pty Ltd as trustee for the Rubino Family Trust (Trust). As a result of this transfer, the Taxpayer had been assessed on the unencumbered value of the properties under the Act. However, the Taxpayer claimed that the transfers should be exempt from stamp duty, or subject to nominal duty only, on the basis that:
- section 54(3) of the Act provides that a nominal duty of $50 is chargeable in respect of transfers taking place as a consequence of the appointment of a new trustee or
- alternatively, section 65(24)(a) of the Act provides that a transfer is exempt from stamp duty where the transfer is made to rectify the consequences of fraudulent conduct.
The Tribunal accepted the Commissioner’s submissions on both issues, finding that:
- section 54(3) of the Act was not applicable as it required that the relevant trust be already in existence prior to the transfer to which a new trustee is appointed taking place, and that the beneficial ownership of the trust property must be unchanging throughout the transaction, so that the trust could be accurately described as one, continuing trust (rather than two separate trusts)
- the Taxpayer had failed to discharge the burden of proof in showing that the Trust was the same trust and that the beneficial ownership of the trust property was unchanged and
- under section 65(24)(a) of the Act, the transfer was not made to rectify the consequences of fraudulent conduct, as Justice White had explicitly stated in the previous litigation, that the transfer of the properties to Pineview was not fraudulent.
The Tribunal, therefore, dismissed the appeal.
Hookey and FCT  AATA 1509
In this case, the Taxpayer sold five childcare centres in December 2008, and made an assessable capital gain.
The AAT held that the Taxpayer failed the $6 million net asset value test for accessing the CGT small business concessions, under Division 152 of the Income Tax Assessment Act 1997. The issue was whether the Taxpayer was entitled to reduce a capital gain by application of the small business CGT concession in Division 152, by approximately $1.6 million.
The Taxpayer argued that he satisfied the test as:
- there were 6 different liability amounts that should be taken into account to determine the net assets, which bring the net value below the sum of $6 million and
- the purchaser paid a significant premium on the purchase price, above market value. The price agreed between the vendor and purchaser was not that which a willing purchaser would have had to pay to a vendor willing but not anxious to sell.
The case highlights the importance of ‘market value’ in these types of transactions where the small business concessions are relied on. Where the asset has been the subject of a recent arm’s length sale, it is generally unnecessary to hypothesise on market value. It is what a willing and knowledgeable, but not anxious purchaser, would pay a willing and knowledgeable, but not anxious vendor.
On each point, the AAT:
- accepted four of the liabilities that were questioned, which reduced the values attributed to those respective assets by a total of $1.2 million and
- determined that the Taxpayer failed to establish that the contract price was not the market price of the childcare centres. To do this it would have had to lead evidence that the price paid by the purchaser was wholly erroneous. The prima facie effect of the negotiated price was to show that the market price was the amount agreed to be paid by the purchaser, and the Taxpayer did not displace that prima facie position. Therefore the purchaser paid market value for the childcare centres.
The Commissioner’s decision was affirmed.
Deductibility of interest on borrowings on-lent to discretionary trusts: Taxation Determination TD 2018/9
On 20 June 2018, the ATO released a Tax Determination, TD 2018/9 (Determination), to provide guidance on the deductibility of interest expenses incurred by a beneficiary of a discretionary trust on borrowings on-lent to the trustee of the trust on an interest-free basis.
The Determination clarifies that when a person borrows money (First Loan), and then lends part or all of that money to the trustee of a discretionary trust to which they are a beneficiary (Second Loan) without charging interest on the Second Loan, the interest expenditure incurred in relation to the First Loan is not usually deductible under section 8-1 of the Income Tax Assessment Act 1997 (1997 Act), subject to certain exceptions.
Section 8-1 of the 1997 Act allows a taxpayer to deduct any loss or outgoing that is necessarily incurred in producing assessable income or in carrying on a business with a view to producing assessable income.
However, there is one exception to this Determination which would enable a taxpayer to deduct all or part of the interest expenditure incurred under the First Loan, where:
- the beneficiary is presently entitled to the income of the trust estate at the time the interest expense on the First Loan is incurred; and
- the expense has a nexus with the income to which the beneficiary is presently entitled.
Therefore, in making this Determination, the ATO is providing clarity that the overriding purpose of section 8-1, namely that deductions are only permitted for expenditure incurred in pursuit of income personally assessable to the taxpayer, will apply to transactions involving trusts where the taxpayer may not be presently entitled to the income or where there is an insufficient connection between the expenditure and the assessable income derived.
The ATO also noted that, with respect to an early trustee resolution, an irrevocable resolution made by a trustee of a discretionary trust in which the trustee exercises a power of appointment is not considered to be a present entitlement in the hands of the beneficiary until that income is received by the trustee and is legally available for distribution (i.e. the trustee cannot distribute money not in present possession of the trust).
If you would like to discuss the application of this ruling and the deductibility of interest to your or your client’s circumstances, please contact a member of our tax team.
Ancillary funds: Commissioner’s exercise of discretion in reducing the minimum annual distribution
The ATO has announced that a practice statement will be released around July 2018 to address the administration of the Commissioner’s discretion to reduce the minimum annual distribution rate for both public and private ancillary funds.
This practice statement is intended to provide guidance to ATO staff on the process to be followed when considering whether or not to exercise the discretion afforded under the amended Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011.
Registered charities no longer liable to pay ASIC Supervisory Recovery Levy
Effective from 1 July 2017, the ASIC Supervisory Cost Recovery Levy Act 2017 (Cth), discussed in detail in Talking Tax – Issue 120, introduced a levy payable by all companies regulated under the Corporations Act 2001 (Cth) to contribute to the regulatory costs incurred by ASIC.
In June 2018, ASIC contacted all relevant companies to request that they provide or validate information regarding their business activity so as to determine the levy payable.
However, on 2 July 2018, the Minister for Revenue and Financial Services Kelly O’Dwyer MP published a media release stating that the Government will instead absorb the levy for registered charities, who will no longer be required to pay the levy.
ASIC have so far been unable to provide guidance as to whether this exemption will apply to companies who operate solely as corporate trustees for registered charities, but who are not themselves registered as a charity.
GST Withholding: property settlement online forms and instructions released
From 1 July 2018, purchasers of new residential premises or potential residential land are required to withhold an amount of the contract price and pay this directly to the ATO as part of the settlement process.
To provide guidance on how to complete the new GST property settlement forms, the ATO has released instructions for completing the two online forms required.
For more detail on the new GST withholding, please see our earlier updates.
Depreciation of a mining, quarrying or prospecting right: Draft Taxation Determination TD 2018/D2
On 13 June 2018, the ATO released a draft Tax Determination, TD 2018/D2 (Draft Determination), clarify the preliminary position of the Commissioner on what constitutes ‘use’, and potentially ‘first use’, of a mining, quarrying or prospecting right that is a depreciating asset for the purposes of subsection 40-80(1) of the Income Tax Assessment Act 1997 (1997 Act).
The crux of the Draft Determination is that a taxpayer will have ‘used’ a mining, quarrying or prospecting right, thereby enlivening subsection 40-80(1) of the 1997 Act where the taxpayer uses the relevant land in a way only permitted due to the holding of the right, but excluding uses which are merely trivial or incidental, even where such uses are technically enabled by the fact of holding the right.
This article was written with the assistance of Dan Poole, Law Graduate.