Risky Risk Management

Greg and Chloe come to see you about reorganising their business affairs. Chloe is about to become the director of a private equity company and is concerned about her personal liability.

Various issues are discussed and various strategies worked out. Step one is relatively simple and involves the Greg and Chloe Family Trust.

You are familiar with this trust because you acted on the purchase of several investment properties by it. You are aware that both Greg and Chloe are the trustees and that the beneficiaries are Greg and Chloe and their children.

Greg and Chloe consider it prudent that Chloe should resign as a trustee leaving Greg as sole trustee. Maybe they should have a corporate trustee instead of either of them but this is put aside for discussion later. There is a degree of urgency about getting things fixed up.

You therefore prepare a deed of retirement and a transfer of the trust properties from Chloe as retiring trustee to Greg as the continuing trustee.

Because there is no change in the beneficial interest of the properties by the change of trustees you assume that there are no problems about CGT or stamp duty. Greg in fact confirms that he checked out the CGT issue with his accountant.

The documents are duly prepared and signed. You then lodge them with the OSR with a cheque for $50 for duty on the transfer which you understand to be the amount payable on a trustee to trustee transfer. You are aware there is a problem about transfers to a new trustee but that isn’t the situation here.

The Sting

You should have checked section 54.

Section 54 of the Duties Act 1997 contains the provisions for change in trustees. It covers a number of different situations. So far as family discretionary trusts are concerned the most important provision is subsection (3) which imposes a duty of $50 on a transfer of dutiable property on, amongst other things, the retirement of a trustee if the Chief Commissioner is satisfied that “(a) none of the continuing trustees remaining after retirement of a trustee is or can become a beneficiary under the trust…”

If the Chief Commissioner is not satisfied about this, duty is payable as if it was a transfer to a beneficiary. That then picks up section 57 which imposes duty of $50 on such a transfer but only if, of relevance here, all property was in the trust when it was first declared. Otherwise duty is payable at normal property rates. And you know only too well that when the trust was declared the only property was the initial settlement of $10.

So, with a sinking heart, especially as you consider the value of those properties now, you pick up the telephone …

This article is general information only and should not be relied on without obtaining further specific information.

Author: Jim Main