Wednesday, May 9, 2012

What are the stamp duty consequences of assets passing via testamentary trusts

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘What are the stamp duty consequences of assets passing via testamentary trusts?’ If you would like a link to the video please let me know.

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

One of the great difficulties in this area, and I think it's an often used phrase, is that in many respects, a lot of these issues, sort of you take one step forward and 2 or 3 steps backwards.

As much as we've touched on already, the great step forward in terms of legislative certainty around the way in which the Tax Office is going to interpret Division 128 from a capital gains tax perspective, conversely what we're seeing from a stamp duty perspective is almost the exact opposite.

So obviously, we still have a situation across Australia where every single state has different stamp duty tests and different stamp duty rules in relation to how they apply distributions under a deceased estate.

It can be said that in every jurisdiction there is certainly an alignment between Division 128 under the Tax Act for the transfer of assets from the will maker to the legal personal representative and from the legal personal representative down into a trust structure.

From there, unfortunately, it really does start to unravel quite significantly, because even in the states that historically allowed assets to be distributed out of an initial trust into a sub trust or out of an initial trust directly to an individual beneficiary, those states are starting to wind back from that position and we've got a situation for many clients where if they're going into the structure, the conservative and prudent advice will probably be that they should expect to pay stamp duty when ultimately taking assets out of the initial trust.

Now I guess that line of reasoning or line of argument needs to be counterbalanced against, and the discussion about whether in fact there will be dutiable property inside the trust; and to the extent that the assets are likely to centre around cash or managed funds or shares, then it may well that for many clients the fact that there's a potential stamp duty risk down the track is in fact irrelevant.

For any adviser working in this space, the ability to give complete signoff from a tax perspective is very much counterbalanced against the fact that from a stamp duty perspective there has to be seen to be a real risk moving forward that there will be double stamp duty potentially.

Until next week.