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A discretionary trust is a structure used to hold property on behalf of one or more people (the beneficiaries). To set up a trust, a trust deed is prepared which sets out the parties and rules of the trust. Once drafted, the trust deed will need to be signed, settled, and may be subject to stamp duty. 

This article answers eight frequently asked questions concerning stamp duty and discretionary trusts.

The Basics

1. What is Stamp Duty?

Stamp duty is a state or territory-based tax applied to certain transactions over dutiable property in that area. Dutiable property includes:

  • real property (i.e. land or real estate);
  • shares;
  • units in a unit trust;

Stamp duty is payable on:

  • documents or transactions that affect the transfer of the ownership of dutiable property; or
  • the creation of rights in respect of certain assets.

2. How Do I Pay Stamp Duty?

The method of payment depends on the state or territory with which you are dealing. Check with the relevant revenue authority to determine how payment is to occur. You can find their websites (current as at the time of publication) as follows:

Australian Capital Territory www.revenue.act.gov.au/
New South Wales www.osr.nsw.gov.au/
Northern Territory treasury.nt.gov.au/Pages/home.aspx
Queensland treasury.qld.gov.au/index.php
South Australia www.revenuesa.sa.gov.au/
Tasmania www.sro.tas.gov.au/
Victoria www.sro.vic.gov.au/
Western Australia www.finance.wa.gov.au/cms/State_Revenue.aspx

 

When Stamp Duty Arises

3. When May I Be Liable to Pay Stamp Duty?

Stamp duty may arise on:

  • transactions involving transferring property; or
  • the settlement (creation) of a trust.

Whether stamp duty applies to property transfers depends on the nature of the transaction and the value of the property. Whether stamp duty is payable on the settlement of a trust depends on where the trust is made and, therefore, what laws apply to the trust.

These two amounts will differ greatly. The maximum amount of stamp duty payable in Australia when establishing a trust with nominal trust capital is $500. On the other hand, stamp duty on a transfer of property will be based on the value of the property itself at progressive rates.

4. When Am I Liable to Pay Stamp Duty on a Transaction?

Each state or territory revenue authority regulates the payment of stamp duty. To find out exactly how much stamp duty you are liable to pay on a transaction, check with the relevant revenue authority (see the table above). The websites of some authorities also contain stamp duty calculation tools and detailed information which can help you assess your liability to pay stamp duty.

Stamp Duty and Trusts

5. When Am I Liable to Pay Stamp Duty When Setting Up My Trust?

You must pay stamp duty on acquisitions and transfers of dutiable property. However, only some states or territories impose stamp duty on the settlement of a trust.

The following table sets out when and where stamp duty applies across Australia.

Stamp Duty Cost Duty Payable Within
Northern Territory $20 60 days from execution
Tasmania $50 90 days from execution
Victoria $200 30 days from execution
New South Wales $500 90 days from execution
Western Australia No stamp duty applicable
Queensland No stamp duty applicable
South Australia No stamp duty applicable
Australian Capital Territory No stamp duty applicable

 

6. Can I Open a Bank Account for a Trust Before Paying Stamp Duty?

Yes, though it depends on the requirements of the individual bank. You can open a bank account as soon as the trust is operational, as long as the bank does not require proof of the trust deed.

 

7. Do I Pay Stamp Duty on a Transaction if I Change the Trustee of my Trust?

This depends on the assets of the trust at the relevant time, and the particular relevant state or territory laws. You should seek specific legal and accounting advice in this situation, prior to the proposed change of trustee transaction.

For example, in NSW and the ACT, stamp duty is payable if the incoming trustee is also a beneficiary of the trust and the trust holds dutiable property.

 

8. Is Stamp Duty Also Payable When Transferring Assets to a Trust or When Purchasing Property?

Stamp duty will apply if:

  • you transfer dutiable property (e.g. real property) to a trust; or
  • a trust purchases that property.

Key Takeaways

Stamp duty can be a substantial tax that arises when a trust acquires or receives dutiable property. The relationship between stamp duty and discretionary trusts can be tricky to navigate.  You should think about whether your trust will be subject to stamp duty when you first set up the trust, or transfer property into the trust. If you have to pay stamp duty on the settlement of your trust, ensure you do so within the relevant time frame to avoid unnecessary penalties.

For more help navigating your way through stamp duty and discretionary trusts, get in touch with LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.

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