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  • Profile photo of andkozandkoz
    Participant
    @andkoz
    Join Date: 2006
    Post Count: 10

    Hi,

    I am trying to sort out what stamp duty would be payable on Hybrid Discretionary Trust Units in Queensland.

    I can imagine that a trust can have 3 types of units: Income Units, Capital Units and Ordinary Units (capital + income).
    The trust may or may not have dutiable property.
    In addition the trust can issue units, redeem units and the units can be transfered.

    The above creates a number of possible scenarious.

    I was led to believe that if the trust isuues or redeems Income Units or if the Income Units are transfered there is no CGT and no Stamp Duty. I would say that the Stamp Duty or CGT is only payable if Capital Units or Ordinary Units are involved.

    I would assume that the Stamp Duty payable would be at the same rate as for ordinary property,

    Can anybody comment and further clarify the above?

    I have problems with my accountant to get a clear answer.

    This is important because one may be caught to pay stamp duty just because the events where executed in wrong order.

    For example the trust first buys a property and then issues units instead of first issueing units and then buying property.

    Can anybody comment and further clarify the above?
    [stun]

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    May differ from State to State but in good old Qld there is no Stamp Duty payable in the issue of the units.

    With regards to the redemption of units I athink you mean the Trust repays the debt then it depends on the vlaue of the asset however this is easily overcome and there would be no CGT.

    In your example the Trust cannot buy a property and then issue units as the property is owned by te Trust and the loan is taken out by the unit holders at the same time.

    Cheers

    Richard Taylor
    Residential & Commercial Finance Broker.
    Licensed Financial Planner. Ph: 07 3720 1888
    [email protected]
    Looking for life cover – We Guarantee to beat any quote you have in writing.

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    Profile photo of andkozandkoz
    Participant
    @andkoz
    Join Date: 2006
    Post Count: 10

    Hi,

    I have further investigated the issue for trusts operating in Queensland. The Stamp Duty is regulated by the Queensland Government “DUTIES ACT 2001, Act.No. 71 of 2001”

    Document WEB link: http://www.legislation.qld.gov.au/Search/isysquery/c6c11a7e-85f4-47dd-871b-b16a5e7f6ca0/2/doc/01AC071.pdf#xml=http://www.legislation.qld.gov.au/Search/isysquery/c6c11a7e-85f4-47dd-871b-b16a5e7f6ca0/2/hilite/

    According to the regulation (and my accountant) one pays a stamp duty when trust units are issued or surrended if the trust holds a dutiable property at that time.

    However, there are exemptions – please see attached.

    The question is what are the criteria/test used by the commissioner to satisy condition 118(1)(a) and 118(1)(b) below?

    I would assume that the section 118 applies to a HDT issueing or buying back trust units?

    Is there anybody reading this who has issued or surrended units in a HDT?
    Could you please share your experience?

    118 Exemption—trust acquisition or surrender in family trust
    (1) Transfer duty is not imposed on a dutiable transaction that is a trust
    acquisition or trust surrender of a trust interest if—
    (a) the commissioner is satisfied the trust is established as a
    discretionary trust primarily for the benefit of the members of a
    particular family or family company; and
    (b) the person acquiring or surrendering the trust interest is a
    member of the family who, or is a family company that, does not
    benefit in the capacity of trustee.
    (2) Also, transfer duty is not imposed on a dutiable transaction that is a trust acquisition or trust surrender if the commissioner is satisfied—
    (a) the trust is established primarily for the benefit of the members of a particular family or family company; and
    (b) the trust acquisition or trust surrender is a result of—
    (i) a member of the family becoming or ceasing to be a
    member of a class of beneficiaries of the trust because of the
    birth or death of the member; or
    (ii) the person becoming or ceasing to be a member of a class of
    beneficiaries of the trust comprising the children,
    stepchildren or grandchildren of a named member or
    members of the family.
    (3) The commissioner may be satisfied of the matter mentioned in
    subsection (1)(a) or (2)(a), even if an exempt institution is the last taker in default of an appointment by the trustee of the trust.

    (4) In this section—
    “family company”, for a trust, means a corporation in which all directorsand shareholders are members of the particular family for which the trust is established.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Hi

    I think this is best answered by a tax lawyer. Maybe you could ring or get your adviser to ring Brett Davies Lawyer in WA, see http://www.lawcentral.com.au and http://www.taxlawyer.com.au They are taxation specialists and issue hybrid trusts.

    From reading the legislation above, there may be problems as the hybrid trust is not really a discretionary trust.

    Terryw
    Discover Home Loans
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    Send an email to get my newsletter.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    As you are in Qld why not ring Steve Hodgkinson he is a Trust specialist based on the Gold Coast.

    His number is 5532 2855.

    Cheers

    Richard Taylor
    Residential & Commercial Finance Broker.
    Licensed Financial Planner. Ph: 07 3720 1888
    [email protected]
    Looking for life cover – We Guarantee to beat any quote you have in writing.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of andkozandkoz
    Participant
    @andkoz
    Join Date: 2006
    Post Count: 10

    Terry, Richard thank you for the links.

    Finally, II think I am close to solving the issue with the stamp duty for the trust units.

    I have a response from the Queensland State Revenue office (below):

    If the trust does not own dutiable property (as defined in section 10 of
    the Duties Act 2001) the transactions described in your email do not
    attract duty.

    If the trust does own dutiable property the transactions described will
    attract duty.

    Please see sections 9(1)(h) & (i), 10 and 49 to 67 in relation to trusts.
    For rates of duty see section 24.

    This is similar message to the response from my Accountant. This makes you wonder how much Stamp Duty and possibly Capital Gain Tax the unit holder would have to pay on the units redemption (repurchase by the trust)? Is this a viable investment vehicle?

    A nice trick is to make the units worthless when the properties held by the trust become cashflow neutral or cashflow positive. In this case a stamp duty on the worthless units would be $0.00.

    Brett Davies, the lawyer from Law Central has stated that in order for this to happen there must be provision for this in the trust deed.

    I am going to get my accountant to talk to Brett Davies to get the trust deed right before establishing the trust.

    [thumbsup2]

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    very interesting Andkoz, please keep us informed how you go.

    Terryw
    Discover Home Loans
    [email protected]
    Send an email to get my newsletter.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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