Tuesday, May 3, 2022

Tax law v Property law – as stark as the difference between Wit and Chu**

Many previous View posts can be filed under the heading ‘trust horror stories’ – and indeed every year we run seminars solely on this topic (with entirely new content each year).

Recently we were reminded of a Tax Office private ruling (being Authorisation Number 1012450031835) that was a horror story, at least with reference to the interplay between the property law regime and tax law.

Briefly the factual matrix was as follows:
  1. A firm (presumably a law firm) prepared and supplied four copies of the trust deed to the settlor of the trust.
  2. The settlor paid the settlement sum to the trustee and it was banked in the trust bank account.
  3. The accountant involved provided the four unsigned copies of the trust deed to the trustee for signing.
  4. The trustee executed all four copies of the deed and returned them to the settlor for signing.
  5. The accountant held the trust deeds in safe keeping for a few years and then returned three copies of the trust deed to the trustee. On receipt, the trustee discovered that the settlor had not signed any of these three copies of the trust deed.
  6. The sole signed copy was retained by the accountant and not returned to the trustee. However on that document, the settlor had signed in the witness space, and the signature was not witnessed.
  7. A Deed of Confirmation was drafted to show that a trust was created and the parties intended to create the trust, however while the trustee and beneficiaries were willing to sign this document, the settlor refused.
The Tax Office confirmed:
  1. The trust deed was invalid under the Property Law Act 1974 (Qld) due to the failure of the settlor to validly sign the document.
  2. This said, the 4 key elements of a trust (being a trustee, trust property, beneficiaries and obligations on the trustee) were all present.
  3. That is, as explained in Harmer v FCT (1989) 20 ATR 1461, a trust is the relationship which arises wherever a person called the trustee is compelled in equity to hold property, whether real or personal, and whether by legal or equitable title, for the benefit of some persons or for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiary or other object of the trust.
  4. Unlike under the Property Law Act which requires trusts in relation to real property to be documented in writing, a formal trust deed is not a specific requirement under tax legislation, so long as there is a clear intention - which there was here.
As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the song by Queens of the Stone Age and ‘Make it Wit Chu’.

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