25 Oct 2023
3 min read
25 Oct 2023
What does a dollar, a chocolate wrapper, a peppercorn and the forgiveness of loans have in common?
We prepared a summary on VCAT’s recent decision in Baullo v Commissioner of State Revenue  VCAT 1164 (“Baullo”) outlining why the exemption in section 36A of the Act was found not to apply and key issues to look out for in such transfers.
The Duties Act 2000 (Vic) (Act) contains numerous land transfer (stamp) duty exemptions, including exemptions specifically catered to trust dealings, found in Division 1 of Part 5 of the Act.
One of these trust duty exemptions is found in section 36A of the Act and is set out below.
Section 36A provides duty relief for the in-specie transfer of property from a discretionary trust to beneficiaries of the discretionary trust.
The property transfer in question related to a property situated in Pascoe Vale South (Property).
The transfer of the Property occurred from JT Development Nominees Pty Ltd (Trustee) as trustee for the J.T. Family Trust (Trust) to Tony and Jordan Baullo as beneficiaries of the Trust (Beneficiaries).
The Property was purchased by the Beneficiaries in their personal capacities initially with the Trust nominated as transferee at a later stage. Tony Baullo paid the deposit comprising of $90,000 and was reimbursed by his son, Jordan Baullo.
The balance of the purchase price was funded by a bank loan.
However, as the Trustee did not have a bank account, the Beneficiaries funded the stamp duty and other incidentals (including the initial deposit), amounting to a total of $156,846.
The sole issue in dispute was whether section 36A(1)(e) of the Act was satisfied to avail the applicants exemptive relief under section 36A.
Owing to the lack of documentation confirming the actual mechanism which resulted in the loans owed to the Beneficiaries being forgiven or repaid, there was some uncertainty relating to the terms of the Trust which gave rise to the transfer of the Property.
However, VCAT found that consideration existed for the transfer of the Property from the Trustee as trustee of the Trust to the Beneficiaries predominantly due to the extinguishment of the loan balance owing to the Beneficiaries (whether by way of payment, set off, forgiveness or otherwise) following the transfer of the Property.
The concept of consideration is extremely broad at law, being anything that moves a conveyance or transaction as noted by the High Court of Australia in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 and State Revenue v Dick Smith Electronics (2005) 221 CLR 496 .
Historically, in considering whether consideration existed for certain transactions, courts have found that even a chocolate wrapper, a peppercorn or a dollar could constitute consideration for a transfer/conveyance.
In the context of forgiveness of loans, the Baullo decision reaffirms a similar section 36A decision in Astakhov v Commissioner of State Revenue  VCAT 1363 and a decision concerning forgiveness of loans under section 36B in Westella Nominees Pty Ltd & Ors v Commissioner of State Revenue  VCAT 1786.
Beneficiary loans are not uncommon, particularly where land development and property investment occurs. The existence of beneficiary loans of itself do not equate to consideration existing for a conveyance or transfer of property.
Therefore, prior to effecting a transfer of land pursuant to an in-specie distribution of property, it is critical to obtain legal advice on whether in-specie trust distribution duty exemptions such as section 36A (or ss 36B, 36) will provide duty relief.
Our State Taxation Lawyers are ready to provide you with specialist duty advice and to guide you in the duty exemption application processes with the respective revenue offices in Australia.
For personalised assistance, please contact Thomas Abraham directly on [email protected] today, or call on 1300 907 335. You can also complete our online form, and rest assured, we will respond promptly.
Disclaimer: This article has been prepared for general information purposes and may not apply to your situation. This information should not be relied upon for legal, tax or accounting advice. Your individual circumstances will alter any legal advice given. The views expressed may not reflect the opinions, views or values of PCL Lawyers and belong solely to the author of the content. © PCL Lawyers Pty Ltd.
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