Holly and Woody come to see you about updating their wills and discuss their estate planning. Both are in their early 80’s and, thanks to Holly with her remarkable skills in day trading, have done very well in the share market since their retirements 10 years ago. As they live comfortably off the income from their share portfolio, they have decided to start re-arranging some things for their sons Hughie and Harry.
Holly and Woody tell you that other than their main residence and their share portfolio, they own a beach house that was purchased in the late 70’s.
You find out that the beach house is owned by the old family trust, of which Holly and Woody are the trustees. Given your recent experiences with Revenue NSW, you immediately think about the evidence you will require to prove that it is an asset of the trust.
Luckily, you think, the accountant has noted ‘land and building’ in the balance sheet for the trust because the transfer of course only notes Holly and Woody as the owners, and bank statements, to evidence that the trust provided the purchase funds, dating back to the 70’s in your experience are non-existent. You ask around and as suspected, no one has a copy of the front page of the contract from when the beach house was purchased. Chances are even if there was one, it probably wouldn’t have made any reference to the trust.
Your instructions are:
- Firstly, to set up a new trustee company with Hughie as the sole shareholder and director, and then to prepare a change of trustee, to give Hughie effective control of the beach house;
- Secondly, after discussing equality of outcomes and to ensure Harry is also looked after, to update Holly and Woody’s wills.
Finally, you lodge the s54 (3) Duties Act application on the Eduties portal with the relevant supporting documents.
The Sting
A few weeks later you receive a requisition requesting further evidence that the property is an asset of the Trust because the financial statements did not reference the relevant property title details.
You know DUT 037 all too well and note particularly at paragraph 8:
8. When lodging a transfer for assessment under section 54 (3), the following evidence must be provided:
(ii) Evidence as to when the property in the transfer was acquired, such as a copy of the stamped front page of the Agreement for Sale or Transfer. Where it is not clear from the Agreement or transfer that the property was acquired as an asset of the trust, the taxpayer may be required to provide evidence that the trust provided the purchase money for the acquisition of the property; and
“That’s ridiculous” you say out loud, “this was all done about 45 years ago, how are we supposed to find any evidence from back then”. Meanwhile you shudder at the thought of how much transfer duty would be on $3million. You do a quick calculation which comes to $147,012.
Not wanting to cause Holly and Woody any alarm, you call the accountant (and alarm him instead!) and ask him whether he has any further evidence, anything at all that would be of help.
The accountant looks back through his records to see what further evidence there might be of the Trust’s ownership of the beach house and finds a couple of prior balance sheets with a reference of 1.5 acres after the note ‘land and building’. You lodge this on the Eduties portal along with a Valuer General valuation which also notes the beach house area as 1.5 acres and think “surely this should be enough to connect the dots”.
The next day you receive another requisition requesting a registered valuation. You know that can only mean one thing, and nervously call Holly and Woody to ask if they have any other evidence…
Take away points:
- When purchasing property in a trust, always keep good records of evidence of payment, e.g. bank statements, loan documents, payment for improvements etc
- Ideally the financials and balance sheets should clearly identify the property by name and/or title reference/s
- Consider adding the trust details to the contract.
Author – Michaela Schmidt Lawyer & Director