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A trust is a legal relationship. The trustee is legally responsible for assets that they hold for the benefit of one or more beneficiaries. A trustee is either an individual or corporate entity who is in charge of a trust. They have to comply with the trust deed, which governs the trust. They also have to follow the law in the state or territory the trust is set up in. This article will explain whether you have to pay duty on changes of trustee in NSW.

Does Duty Apply to a Change of Trustee?

When a trustee is removed or resigns, legal title to the trust assets is transferred to the new trustee. If any of those trust assets are classified as “dutiable property”, you have to pay duty at rates of up to 5.5%. This jumps to 7% for premium property, which is property valued at more than $3 million. This duty applies unless there is a special concession.

Special Concessions

You will only have to pay $50 duty if a trustee resigns or a new trustee is appointed if the Chief Commissioner is satisfied that:

  • none of the trustees remaining after the retirement of, or appointment of a new, trustee (if any) are or can become a beneficiary under the trust; and
  • the transfer is not part of a scheme to avoid paying duty.

Common Scenario

Most modern trust deeds have a broad class of potential beneficiaries. If a beneficiary is also a shareholder in a company, that company is also a beneficiary. For example:

  • A and B are primary beneficiaries of the AB Family Trust;
  • the secondary beneficiaries of the AB Family Trust include any parents, grandparents, children, grandchildren, great grandchildren and siblings of A and B; and
  • the tertiary beneficiaries include any companies or trusts in which A or B, or any of the secondary beneficiaries, have an interest in or hold an office, including as shareholder, director, secretary or beneficiary.

Therefore, as soon as a beneficiary is also a shareholder in a company, the company itself is automatically a beneficiary. Accordingly, you could not be eligible for the concessional $50 duty. This is because the new trustee is clearly a (tertiary) beneficiary under the trust.

What Are My Options?

The trustee usually has the power to specifically remove a beneficiary, depending on the trust deed. If so, you could remove the new trustee as a beneficiary before changing the trustee so that, at the relevant time, the new trustee is not a beneficiary and so satisfies the requirements for you to be eligible for concessional duty.

If the trust deed does not contain a specific power to remove beneficiaries, you may do so under the general amendment power. The general amendment power allows the trustee (usually with the consent of the appointer, who is the ultimate controller of the trust) to change the terms of the trust deed.

What About Capital Gains Tax?

Again, the transfer of a capital asset under a change of trustee gives rise to a change of ownership. A capital asset is one you hold for long-term capital growth. For example, an investment property is a capital asset, whereas trading stock or an asset you intend to sell isn’t.

A change of ownership generally occurs where there has been a disposal by one party (e.g. the seller) to another (e.g. the buyer), which triggers a capital gains tax (CGT) event.

However, a mere change of trustee does not trigger a CGT event as the relevant ‘entity’ for CGT purposes is the trust itself, regardless of the identity of the trustee changing from time-to-time.

Therefore, a mere change of trustee does not usually give rise to any CGT consequences.

Key Takeaways

Generally, if there is a change of trustees, you have to pay duty tax. However, if there is a special concession you only need to pay $50 duty. In order to be eligible:

  • none of the trustees remaining after the retirement of, or appointment of a new, trustee (if any) are or can become a beneficiary under the trust; and
  • the transfer is not part of a scheme to avoid paying duty.

In particular, you should pay attention to any beneficiaries who are, for example, also shareholders in a company. In this situation, the company will automatically also be a beneficiary. If this is the case, you will not be eligible for the concession rate of $50.

Finally, you do not need to pay CGT upon changes of trustee in NSW. If you need assistance navigating the change of a trustee, contact LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.

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