Victorian State Revenue Office Case Alert – Section 36A Discretionary Trust to Beneficiary Duty Transfer Exemption Refused

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 [2023] 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.

Section 36A Background

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.

Background Facts

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).

Purchase Price – Breakdown of Funding

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.

Sole Issue in Dispute (Section 36A(1)(e)) – No Consideration Requirement

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.

VCAT Decision – Section 36A Exemption Not Satisfied

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.

Concept of Consideration is Broad and Includes Forgiveness of Loans

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 [2018] VCAT 1363 and a decision concerning forgiveness of loans under section 36B in Westella Nominees Pty Ltd & Ors v Commissioner of State Revenue [2010] VCAT 1786.

Key Takeaways

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.

About The Author - Thomas Abraham

Thomas Abraham is an accomplished senior lawyer with expertise in state taxation advice and litigation. His extensive background and experience make him an invaluable asset to our...