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Superannuation and Stamp Duty A PAPER BY PAUL ANDERSON JANUARY 2011


Superannuation and Stamp Duty

Summary Two recent New South Wales statutes deal with important aspects of stamp duty involving superannuation funds.

Who Does This Impact? Members and trustees of superannuation funds and their advisers.

What Action Should Be Taken? Trustees of SMSFs should be aware of the new Section 62A and should review their trust deeds and Section 66 of the SIS Act before accepting a transfer of real property from a member.

Contents:

TURKSLEGAL

Change of Trustee

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Transfers to a SMSF

3

Conclusion

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PAPER


Superannuation and Stamp Duty by Paul Anderson

In the latter half of 2010, the NSW Government passed two acts that impact upon stamp duty and superannuation. The relevant acts are the State Revenue Legislation Amendment Act 2010 (‘the Amendment Act’) which operated from 1 July 2010 and the State Revenue Legislation Further Amendment Act 2010 (‘the Further Amendment Act’) which in the main commences from 1 January 2011.

Change of Trustee The Amendment Act introduced a change to Section 54 of the Duties Act that produced a certain degree of consternation within the industry. Prior to the amendment, Section 54 provided that only $50.00 is chargeable in respect of a transfer of dutiable property as a consequence of the retirement of a trustee or the appointment of a new trustee provided that none of the continuing trustees and none of the trustees after the appointment ‘is or can become a beneficiary under the trust’. Otherwise, the transfer was liable for ad valorem duty. However, Section 54 also provided that only $50.00 was payable on a transfer to a ‘special trustee’ as a consequence of the retirement of a trustee or the appointment of a new trustee. ‘Special trustee’ was defined to include a complying superannuation fund under Section 267 of the Income Tax Assessment Act 1936. The Amendment Act changed the definition of ‘special trustee’ to limit it to a complying superannuation fund under Section 42 of the Superannuation Industry (Supervision) Act 1993 (‘the SIS Act’). Section 42 expressly excludes self managed superannuation funds (‘SMSFs’) which are regulated under Section 42A of the SIS Act. The effect was that a trustee of a SMSF did not come within the definition of ‘special trustee’. This meant that on change of a trustee there would be a liability for ad valorem stamp duty unless the continuing trustees or the trustees after the change were not and could not be a beneficiary of the fund. A concrete example follows: A married couple, H and W, are the only members and trustees of a SMSF, which owns significant real estate assets. H dies. It is necessary to comply with the SIS Act and appoint a new trustee. However, W is a continuing trustee and is also a beneficiary, thereby triggering a liability for ad valorem duty on transfer of the real estate to the new trustees. The only way to avoid this outcome was to appoint a corporate trustee after first amending the trust deed to provide that the trustee could not be a beneficiary of the fund in any circumstances. As indicated above, this result created considerable uncertainty within the industry. The NSW Government has now recognised that this was an unintended result. The Further Amendment Act includes in the limitation of duty of $50.00 a transfer to an SMSF which is now defined as a superannuation fund complying with Section 42A of the SIS Act. The amendment is backdated to 1 July 2010, thereby restoring the status quo before the passing of the Amendment Act.

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Superannuation and Stamp Duty by Paul Anderson

Transfers to a SMSF The other significant change introduced by the Amendment Act effective from 1 July 2010 is the introduction of a new Section 62A of the Duties Act. Prior to the amendment, a transfer of dutiable property by a member to his SMSF was liable for stamp duty like any other transfer, i.e. no special rules or exemptions applied. Under Section 62A, duty of $50.00 only is payable on such a transfer but only if: •

The transferor is the only member of the superannuation fund and ‘the property is to be held by the trustee solely for the benefit of the transferor; and

The property is to be used solely for the purpose of providing a retirement benefit for the transferor.’

The property is held by the trustee solely for the benefit of the transferor if: •

The property is held specifically for the benefit of the transferor, as the member of the superannuation fund; and

The property (or the proceeds of sale of the property) cannot be pooled with property held for another member of the superannuation fund; and

No other member of the superannuation fund can obtain an interest in the property (or the proceeds of sale of the property).

This means that, if there is more than one member of the SMSF, the dutiable property transferred will effectively have to be ‘quarantined’ for the benefit of the member. Almost certainly, this will require amendments to the SMSF’s trust deed before the dutiable property is transferred. Care will also need to be taken in the accounting treatment of the transfer so that the property is held exclusively for the benefit of the transferor member. The reader should also be aware of the fact that the SIS Act regulates the circumstances in which a member is permitted to transfer property to a superannuation fund. The question of stamp duty only becomes relevant if the SIS Act permits the transfer in the first place. In particular, Section 66 of the SIS Act provides that as a general rule such transfers are prohibited. However, there are exceptions in the case of transfers of listed securities acquired at market value or transfers to a SMSF member of ‘business real property’ acquired at market value. ‘Business real property’ in relation to a member means real property of the member which is used wholly and exclusively in one or more businesses.

Conclusion The relief granted by the new Section 62A of the Duties Act will make transfers of real property owned by a member to his SMSF more attractive. However, trustees and their advisers must first ensure that the transfer is permitted by Section 66 of the SIS Act. They should also review the relevant trust deed to ensure that the terms of Section 62A are satisfied.

TURKSLEGAL

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Superannuation and Stamp Duty by Paul Anderson

For more information, please contact: Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au

Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Insurance & Financial Services | Commercial Disputes | Workers Compensation | Business & Property

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Superannuation and Stamp Duty