Avoiding double stamp duty: Declaration of Trust and the apparent purchaser concession

9 minute read  04.11.2020 Sarah Shaw

The NSW Civil and Administrative Tribunal (Tribunal) handed down its decision in Tzovaras v Chief Commissioner of State Revenue [2020] NSWCATAD 265 (Tzovaras). The decision confirms that a double duty liability arose on an arrangement involving a land purchase and declaration of trust over the land. The decision reiterates the need for satisfactory evidence to support a claim for the 'apparent purchaser' duty concession.

 

Apparent purchaser concession

Section 55 of the Duties Act 1997 (NSW) (Duties Act) provides that certain transactions in relation to apparent purchasers are subject to concessional fixed duty of $50 (rather than ad valorem transfer duty rates). The concession applies on a declaration of trust made by an apparent purchaser regarding identified dutiable property (eg land) vested or to be vested in the apparent purchaser upon trust for the real purchaser who provided the money for the purchase of the dutiable property.

To access the concession, section 55 of the Duties Act expressly requires that the Chief Commissioner be satisfied that the money for the purchase of the dutiable property has been or will be provided by the real purchaser (including that if the money was provided as a loan, the loan has been or will be repaid by the real purchaser).

Implications from the Tribunal's decision

The decision illustrates the importance of evidence contemporaneous with the acquisition by the apparent purchaser which supports the establishment of the trust (ie the apparent and real purchaser trust relationship); the continuing intention of the apparent purchaser to hold the property for the benefit of the real purchaser(s); and that the real purchaser(s) provided the money for the purchase of the dutiable property, and is liable to repay any related loan.

Factual background

On 6 May 2015, A M Tzovaras (the Applicant) entered into a contract (Contract) for the purchase by him of land in NSW (the Property). The consideration for the purchase was $736,500, of which $257,292.60 was expressed to be payable as a deposit (the Deposit) and the balance of $479,207.40 was payable on completion.

On that same day, the Declaration of Trust (Declaration of Trust) was executed. It was between the Applicant as trustee and other family members (all the Purchasers), TL Consulting Pty Ltd (Original Trustee), and T D Tzovaras (Father).

The Declaration of Trust provided:

  • That the purchase of the Property was made by the Applicant for the benefit of the Purchasers.
  • That the purchase price for the Property was provided by:
    • the Original Trustee for the Deposit of $257,292.60; and
    • for the balance - from the proceeds of a loan (Loan) obtained by the Applicant from a bank.
  • The Father undertook to pay all monthly instalments on, and ultimately to repay in full, that Loan.
  • The Father and the Purchasers jointly and severally agreed to indemnify the Applicant as trustee against any liability incurred by him because of having purchased the Property in his name.
  • The Purchasers agreed to pay punctually all rates, taxes and other outgoings for the Property, and the principal, interest and all other money due under any mortgage or other charge which, at the request of the Purchasers, the Applicant executes over the Property.

The Contract was lodged with the Chief Commissioner of State Revenue (Commissioner) and marked with duty paid of $28,722.50.

On 10 April 2017 (ie nearly two years after its execution), the Declaration of Trust was lodged with the Commissioner requesting it be stamped with nominal duty only (without supporting reasons).

After an assessment and re-assessment of the Declaration of Trust, duty was assessed on the Declaration of Trust based on the purchase price under the Contract with interest.

The Applicant lodged an objection to the re-assessment of duty and interest imposed on the Declaration of Trust. The Commissioner disallowed the objection.

On 16 March 2020, the Applicant, the Purchasers and the Father executed an amendment deed to the Declaration of Trust (the Amendment Deed) which provided:

  • There were errors in the Declaration of Trust.
  • The Deposit for the purchase of the Property was provided by the trustee in his personal capacity for and on behalf of the Purchasers (including himself) and not by the Original Trustee.
  • The Father was not to pay the Loan instalments or indemnify the Applicant. Instead new provisions provided that the Purchasers each acknowledged an obligation to contribute 20% of the costs of purchasing the Property, including the purchase price and Loan repayments, including reimbursing their respective shares of the Deposit to the Applicant.

Issues for the Tribunal

The key issues for the Tribunal were whether the Declaration of Trust attracted ad valorem transfer duty of $28,722.50, or $50 concessional duty under the 'apparent purchaser' concession in section 55 of the Duties Act. If the Declaration of Trust did attract ad valorem transfer duty, whether interest should be charged by reference to both the market rate component and the premium rate component.

The Applicant's arguments were:

Apparent Purchaser Argument

  • The Declaration of Trust should be subject to concessional duty only as it satisfied the apparent purchaser concession.
  • The Property vested in the Applicant as apparent purchaser only as he held it in trust for the Purchasers (including the Applicant in his personal capacity) as the real purchasers.
  • The Purchasers effectively provided the money to purchase the Property. This was because they were legally obliged, as against the Applicant in his trustee capacity, to pay the purchase price. They incurred this obligation with their respective commitments, set out in the Declaration of Trust and in the Amendment Deed, to indemnify the Applicant against liabilities incurred by him in connection with the purchase of the Property, and in particular their undertaking to meet mortgage payments.

No Double Duty Argument

  • Alternatively, the Declaration of Trust and the Contract gave effect to a single transaction, being the acquisition of the Property by the Purchasers as beneficial owners. Section 18 of the Duties Act applied so where the dutiable transaction is effected by more than one instrument, one only of those instruments is to be stamped with ad valorem duty and each other instrument is to be stamped with $50 duty. In consequence, since the Contract has been stamped with ad valorem duty, the Declaration of Trust should be stamped with $50 duty only.

The Commissioner argued:

  • The concession under section 55(1)(a)(ii) of the Duties Act is not satisfied because the Applicant had not established that the money for the purchase of the Property was provided by the Purchasers rather than the Applicant.
  • The Declaration of Trust and the Contract were separate and distinct dutiable transactions. Section 18 of the Duties Act did not apply.

Findings by the Tribunal

Double duty

The Tribunal found that the no double duty provisions did not apply so, absent the apparent purchaser concession, a liability to two rounds of ad valorem transfer duty arose.

Each of the Contract and the Declaration of Trust was individually a dutiable transaction (the former an agreement for the sale or transfer of dutiable property, and the latter a declaration of trust over dutiable property).

Each of the Contract and the Declaration of Trust was a complete and self-contained instrument and each was a separate dutiable transaction. Section 18(1) therefore didn't apply because there was not a single dutiable transaction effected by multiple documents, but two dutiable transactions, each of which was given effect to by a discrete instrument (even if the Applicant thought they both comprised and achieved a single commercial objective).

Apparent purchaser concession did not apply

The Tribunal found that the apparent purchaser concession did not apply because there was insufficient evidence to show that the purchase money for the Property had been or would be provided by the real purchasers.

This was the case notwithstanding the indemnity and repayment provisions in the Declaration of Trust and Amendment Deed. (The Tribunal noted that the Amendment Deed could have no retrospective effect on the dutiable Declaration of Trust in any event.) It remained the case that the financial burden of purchasing and owning the Property (including meeting the Deposit) and of servicing and repaying the Loan was solely with the Applicant.

The Applicant was the only person responsible for the Deposit, and the only person who incurred any liability to the bank under the Loan arrangements.

The Applicant was thus the only person who could be considered to have contributed to the payment of the purchase price.

This conclusion followed the Commissioner's Ruling DUT 030 “Property Vested in an Apparent Purchaser” (Ruling) in which the Commissioner states: “Where part of the purchase price is provided by means of a loan secured by a mortgage over the property, the persons who are under an obligation to repay the loan are taken to have provided that part of the purchase price, regardless of who actually makes those repayments”.

Even though in this case the real purchasers may have had a contractual or equitable obligation to the Loan under the Declaration of Trust and Amendment Deed, this was not the statutory test. Instead it was whether the Commissioner was satisfied that the Loan “has been or will be repaid by the real purchaser”.

The Applicant didn't provide sufficient evidence that any part of the Loan used to fund the purchase price for the Property was or would be repaid by the Purchasers. At most, the evidence suggested that only a limited sub-set of the Purchasers had contributed (or could realistically be expected to contribute) to the repayment of the Loan. Also to the detriment of the Applicant, the Tribunal noted the confusion about the source of the Deposit (including inconsistent statutory declarations made by the Applicant), and the ambiguous banking records that couldn't demonstrate that any beneficiary of the trust other than the Applicant and his brother, contributed towards the initial acquisition of the Property or towards repayment of the Loan obtained by the Applicant.

Finally, as the Applicant did not provide submissions or evidence as to why, if the assessment was confirmed, interest should be remitted, the market rate and premium rate interest was affirmed by the Tribunal. The inconsistent statutory declarations weren't beneficial for the Applicant in this respect. 

Conclusion

The absence of objective evidence as to who provided the purchase price (including Deposit) and the confused picture as to how mortgage repayments were made (noting that the real purchasers were not liable to the bank to repay the Loan in any event), were fatal to the Applicant's reliance upon section 55.

Taxpayers should carefully review the Ruling which sets out the evidentiary requirements to support the apparent purchaser concession. This 'checklist' includes evidence confirming that the real purchaser actually provided the purchase monies for the trust property. This may consist of bank statements and copies of cheques. If any part of the purchase monies was borrowed by the apparent purchaser (eg in the apparent purchaser's name as mortgagor) details of the loan arrangements and any contemporaneous indemnities or undertakings relating to the repayment of the loan given by the real purchaser(s) should be provided.

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