At times you may wish to change the trustee of your trust.
There is no change of beneficiary. The same beneficial owners are still there. There is no change on who the equitable owners are. But in NSW you may have to pay ad valourem stamp duty on the market value of the real estate. (About 4.5%.)
Under Section 54(3) Duties Act (NSW) 1997 if you change the trustee and have “dutiable property” you pay have to pay full stamp Duty. Under section 11 ‘dutiable property’ includes land and shares.
Under Section 11 dutiable property includes:
- NSW real estate
- NSW shares in a company (but not shares quoted on the ASX)
- units in a unit trust scheme
- a business asset such as the goodwill of a business or intellectual property and a partnership interest
The good news is that under section 54(3) you only pay a nominal sum of stamp duty from one trustee to another. But this is only if the Chief Commissioner is satisfied that:
(a) none of the continuing trustees remaining after the retirement of a trustee are beneficiaries under the trust, and
(b) none of the trustees of the trust after the appointment of a new trustee is or can become a beneficiary under the trust, and
(c) the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest of any person.
What if the Commissioner is not so satisfied? The change of trustee is chargeable with the same duty as a transfer to a beneficiary.
You must pass all three of the above tests. Otherwise, full at ad valorem duty applies.
This is a common problem because:
- you often have humans as trustees of your trust (companies cost money)
- such humans are often beneficiaries of the trust
Mum and Dad are trustees of their trust. They, together with their children, and many others, are also beneficiaries. The trust owns a block of flats in Double Bay.
Dad removes dead Mum as one of the trustees. She is a ‘continuing trustee’. Section 54(3)(a) applies. Dad pays full ad valorem stamp duty on the Deed of Variation of his Family Trust to change the trustee. That is roughly 4.5% on the market value of the flats.
Instead, Dad should have incorporated a new Company. Signed an irrevocable minute so that the company can never be a trustee. And made the company the sole trustee of the trust.
The new or continuing trustee is not and cannot become a beneficiary under the trust
Under section 54(3)(a) and (b), the Chief Commissioner must be satisfied that (as the case may be):
- none of the continuing trustees remaining after the retirement of the trustee is or can become a beneficiary under the trust, and
- none of the new trustees after the appointment of a new (whether additional or substituted) trustee is or can become a beneficiary under the trust.
This means that the new or continuing trustees cannot be existing beneficiaries of the trust and can never become beneficiaries of that trust. This requirement applies irrespective of the nature of the trust, although it will typically be a discretionary trust (family Trust) or a unit trust. This requirement also applies to all types of beneficiaries under the trust.
All new trustees (whether additional or substitute trustees) and any continuing trustees must satisfy this test. However, the prohibition does not apply to former trustees, so that the concession can still apply even where the retiring trustee is or may become a beneficiary of the trust. But the status of the retiring trustee as a beneficiary (or potential beneficiary) of the trust may be relevant to whether there is a scheme of the kind referred to in section 54(3)(c) [see para 7 below].
There is no set form of words required to preclude either a continuing or new trustee from becoming a beneficiary under a trust. The Chief Commissioner is satisfied that this is the case where the terms and conditions of the trust deed and any variation thereto provide that the new or continuing trustee is prohibited from being or becoming a beneficiary under the trust and where this prohibition is irrevocable: Oates Properties Pty Ltd & Ors v Commissioner of State Revenue  NSWSC 596 at  and .
In the case of a unit trust, where there is no prohibition on the new trustee (or any continuing trustee) from also holding units in the trust (and therefore being or becoming a beneficiary of the trust), it is irrelevant in what capacity the units are or may be held by that trustee; they may be held beneficially or in some other trustee capacity. In such a situation, sections 54 (3)(a) or (b) is simply not satisfied, and the transfer of the trust property to the new trustee (or any continuing trustee) will be liable to ad valorem duty accordingly.
When lodging a Deed of Variation to change the Trustee in NSW:
- A complete copy of the trust deed (stamped if applicable)
- Evidence as to when the trust properties were acquired (Agreement for Sale or Transfer)
- Deed of Variation to change the trustee
- Minutes supporting the Deed of Variation
- For Unit Trusts only a copy of the register of unit-holders
Ad valorem is a Latin term. It means “according to value”. It is used in reference to duties (i.e. tax) are levied. This is on a transaction or property, that is payable based proportionally on the market value of the property.
The most common example of the calculating duty on an ad valorem basis is the transfer of land or business duty (formerly known as stamp duty in NSW). The duty on a sale or transfer of land is paid according to the rates published by Revenue NSW.
Self-Managed Superannuation Fund
This problem does not exist if you build a Special Purpose Company for your SMSF: State Revenue Legislation Further Amendment Act 2010 (NSW).