STAMP DUTIES (TRUSTS) AMENDMENT BILL

Second Reading

Second reading.

The Hon. P. HOLLOWAY (Minister for Police, Minister for Mineral Resources Development, Minister for Urban Development and Planning) (17:47): I move:

That this bill be now read a second time.

I seek leave to have the second reading and the explanation of clauses inserted in Hansard without my reading them.

Leave granted.

The Stamp Duties (Trusts) Amendment) Bill 2008 makes amendments to the trust provisions of the Stamp Duties Act 1923 ('the Act').

The Bill makes a number of amendments required as a consequence of two High Court cases and to provide stamp duty relief for transfers resulting from certain land subdivisions and for transfers of property between responsible entities and custodians of managed investments schemes.

A number of the measures contained in this Bill are complex and technical in nature.

In the decision in the case of MSP Nominees Pty Ltd v Commissioner of Stamps ('the MSP case') handed down in September 1999, the High Court held that a redemption of units in a unit trust was not liable to duty under the Act.

The Act was subsequently amended by the Stamp Duties (Land Rich and Redemption) Amendment Act 2000 ('the Amendment Act'), to ensure that the issue and redemption of units in private unit trusts that own property in South Australia remained liable to ad valorem conveyance duty, except where a relevant exemption applied. The Amendment Act operated to validate assessments of duty made prior to the date of the decision in the MSP Case except in situations where valid objections or appeals had been lodged within the legislatively prescribed timeframes.

It has since become apparent that the structure of the Amendment Act has led to unintended consequences in relation to two exemptions available under the Act.

Firstly, the exemption contained in section 71(5)(e) is arguably not available in respect of distributions and transfers from certain trusts.

Prior to the MSP decision, the view held by RevenueSA was that a distribution from a unit trust was exempt from ad valorem duty on the basis that a unit trust was considered a fixed trust in which the unit holders had an equitable interest in the trust assets.

The operation of the Act as a result of the MSP decision and the subsequent amendments is such that the exemption contained in section 71(5)(e) will not apply where trust property is transferred to a unit holder of a unit trust as the unit holder is not considered to have a beneficial interest in the property transferred. Transfers of property from superannuation funds to fund members are similarly not exempt from duty.

Given that this result was not intended, RevenueSA has continued to administer the exemption in a manner consistent with the practice of the Office prior to the decision in the MSP case, so as not to remove benefits to taxpayers.

In order to give legislative effect to this practice, the Bill amends section 71(5)(e) to exempt, from ad valorem duty, distributions from unit trusts, or transfers of property from superannuation trusts to the extent of the value of the unit holder’s or fund member’s interest in the trust.

The second unintended consequence relates to General Exemption 26 of Schedule 2 of the Act.

Exemption 26 was inserted following submissions from the funds management industry, who were concerned that the broad definitions of interest introduced by the Amendment Act would result in every day transactions where members are added and removed from superannuation funds being subject to ad valorem conveyance duty.

Prior to the Amendment Act ad valorem duty was payable on the conveyance of property from an existing member of a superannuation fund to the trustee of the superannuation fund to be held subject to that superannuation trust. Exemption 26 was not intended to have any affect on such transfers and they should have remained liable to duty.

As a result of objections lodged against assessments of stamp duty made on the above basis, the Solicitor General and Crown Solicitor provided RevenueSA with advice that Exemption 26 operates more broadly than was intended and recommended that consideration should be given to amending the exemption to more clearly provide for the limited exemption that was intended.

This Bill puts beyond doubt that the current stamp duty exemption that allows for new members to join superannuation funds or for existing members to retire from superannuation funds does not extend to circumstances where property is transferred to the trustee of a superannuation fund on behalf of fund members without the payment of ad valorem duty.

On 28 September 2005, the High Court handed down its decision in the Victorian case of CPT Custodian Pty Ltd vs Commissioner of State Revenue ('the CPT Case'). The decision in this case cast doubt on the effectiveness of the changes made by the Amendment Act to the charging provisions of the Act in response to the original MSP decision.

The Crown Solicitor has advised that the decision in the CPT Case essentially means that the transfer of a unit in a unit trust will not constitute a transfer of property that is subject to that trust and, therefore, is not liable to ad valorem conveyance duty in South Australia. Consequently, further amendments are now required.

Private unit trusts are a commonly employed means to hold high value property, such as city office buildings, shopping centres and large development stock. As such, duty on private unit trust transfers is a significant component of the conveyance base.

The Bill therefore amends the private unit trust provisions of the Act as advised by the Crown Solicitor to clarify the operation of the provisions, to ensure they continue to apply in the same way that they did prior to the High Court decision in the CPT Case.

In order to protect the integrity of the revenue base the amendments operate both retrospectively and prospectively.

The proposed amendments ensure that the trust provisions of the Act will operate in the same manner as they did prior to the two High Court decisions, thereby protecting the revenue base whilst at the same time providing a fair and consistent outcome for taxpayers.

The Bill also provides two additional stamp duty exemptions.

The first additional measure relates to cases where ad valorem stamp duty is paid on the transfer of land which has been purchased subject to a written trust arrangement and is then subdivided into multiple lots and transferred to identified beneficiaries.

Currently the Act only provides an exemption from duty where the original purchased land is Torrens Title land and the land is subdivided into multiple Torrens Title lots, and then transferred to the beneficiaries as contemplated under the trust.

The existing exemption does not apply in circumstances where the relevant land is subdivided into community titles or community strata titles rather than Torrens Titles.

The Government is of the view that to restrict the exemption in this way is inequitable and the Bill operates to provide an exemption from ad valorem duty in situations where trust property is sub divided into community or community strata titles and transferred to previously identified beneficiaries as required under the trust.

The Bill also provides a new exemption in relation to transfers between the responsible entity and the custodian of a managed investment scheme.

On 1 July 1998, the Commonwealth of Australia enacted the Managed Investments Act 1998, which created Chapter 5C of the Corporations Law (Cth), the predecessor to the Corporations Act 2001 ("the Corporations Act"), and introduced the concept of a managed investment scheme into the property investment market in Australia.

A managed investment scheme is similar in form and in operation to a unit trust. It is an avenue through which an investor contributes money to acquire an interest in any benefits produced by the scheme. The scheme pools the money from the investors and produces benefits by investing in such things as real property, shares, units and mortgages. The pool of money from multiple investors enables the scheme to take advantage of larger investment opportunities.

A managed investment scheme, though regulated under the Corporations Act, is not a legal entity. Hence, the Corporations Act mandates the appointment of a responsible entity both to hold property and to undertake the business of the scheme.

The Corporations Act also allows for the appointment of a custodian to hold the assets of the scheme and Australian Securities and Investment Commission ('ASIC') has stipulated that a custodian must be utilised when the responsible entity has less than $5 million in net assets.

Where a managed investment scheme has a responsible entity and custodian in place, it is sometimes necessary for assets to be transferred between the responsible entity and the custodian.

On a technical reading of the Act, transfers between the responsible entity and the custodian of a managed investment scheme are currently subject to ad valorem conveyance duty as a voluntary conveyance.

All other jurisdictions provide an exemption or concession from duty in relation to such transfers and following representations from industry, the Government is of the view that an exemption is warranted.

A number of the measures contained in this Bill have been the subject of lengthy and detailed consultation with industry representatives, and I take this opportunity to thank the members of RevenueSA’s consulting groups who have taken the time to provide valuable assistance in the formulation of the Bill.

I commend the Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Amendment provisions

These clauses are formal.

Part 2—Amendment of Stamp Duties Act 1923

3—Amendment of section 71—Instruments chargeable as conveyances

This clause amends section 71 of the Stamp Duties Act 1923.

Section 71(3) deems certain instruments to be conveyances operating as voluntary dispositions inter vivos (that is, among or between living persons).

This clause inserts a new subsection into section 71. Proposed subsection (4b) provides that, for the purposes of the Act, property held by the trustees of a unit trust scheme in trust for the unitholders is taken to be held beneficially by the scheme. Further, the holder of a unit in a unit trust scheme that is taken to hold property beneficially is taken to have a beneficial interest in that property. The new subsection also provides that the transfer, creation, surrender, renunciation, redemption, cancellation or extinguishment of a unit in a unit trust scheme that is taken to hold property beneficially is taken to be a transfer, creation, surrender, renunciation, redemption, cancellation or extinguishment (as appropriate) of a beneficial interest in that property.

Under section 71(5), certain instruments are deemed not to be conveyances operating as voluntary dispositions inter vivos. This clause makes a number of amendments to subsection (5).

A number of new definitions are inserted into subsection (15). Three of the new definitions are relevant to proposed new paragraph (da) of subsection (5), which relates to managed investment schemes. A registered managed investment scheme is a managed investment scheme registered under the Corporations Act 2001 of the Commonwealth. The responsible entity for a registered managed investment scheme is the responsible entity for the scheme under that Act. The primary custodian for the responsible entity is the person that has been appointed under section 601FB(2) of the Corporations Act 2001 to hold property for the scheme as agent for the responsible entity.

Under proposed new paragraph (da), a transfer of property subject to a registered managed investment scheme from the responsible entity of the scheme to a person as primary custodian for the responsible entity (or vice versa) will be deemed not to be a conveyance operating as a voluntary disposition inter vivos.

The provision includes an exception to this general rule. Paragraph (da) does not apply to a transfer of property that is part of an arrangement under which either the property ceases to be subject to the scheme or the persons who are members of the scheme do not have the same interest in the property after the transfer as they had immediately before the arrangement was entered into.

Under proposed paragraph (e) of section 71(5), which replaces an existing paragraph, a transfer of property by a trustee to a person who has a beneficial interest in the property will be deemed not to be a conveyance operating as a voluntary disposition inter vivos if—

the person has a beneficial interest in the property (other than a potential beneficial interest) by virtue of an instrument that has been stamped; and

the property was acquired for the trust, or became subject to the trust—

by virtue of an instrument duly stamped with ad valorem duty; or

as a result of a transaction to which section 71E applies (see below) in relation to which a statement under that section has been lodged and ad valorem duty paid; or

under one of the other paragraphs of section 71(5) (other than paragraph (d)); and

in the case of a discretionary trust (other than a superannuation fund (as defined) or a unit trust)—the person acquired the beneficial interest by virtue of a duly stamped instrument that is separate from the instrument under which he or she became an object of the trust.

Section 71E applies to a transaction resulting in a change of ownership of certain interests if—

the transaction was not effected by an instrument on which ad valorem duty is chargeable; but

if the transaction had been effected by an instrument, the instrument would be chargeable with duty as a conveyance or as if it were a conveyance.

Under new definitions inserted into section 71(15), a superannuation fund is a fund that is, under the Commonwealth Superannuation (Supervision) Act 1993, a complying superannuation fund for the purposes of the Income Tax Assessment Act, while a unit trust is a trust giving effect to a unit trust scheme.

The proposed paragraph also includes an exception.

The Bill also inserts a new subsection. Proposed subsection (7) replaces an existing subsection and includes provisions that apply for the purposes of subsection (5)(e). The first of these provisions says that, for the purposes of subsection (5)(e), the net value of property is to be calculated by subtracting from its unencumbered value the amount of any liability subject to which the property is transferred. This does not include a liability that is to be discharged after the transfer takes effect by the trustee or for some other reason is not finally assumed by the transferee.

The second provision provides that, in calculating the value of a beneficiary's interest in a trust, all assets and liabilities of the trust are to be taken into account. Under the third provision, a member of a superannuation fund is to be taken to have a beneficial interest in the property of the fund equivalent to the amount to which the member would be entitled on transfer of membership to another fund.

Finally, the proposed subsection provides that if property of a trust consisting of land is divided by community plan under the Community Titles Act 1996 and land subject to the division is then transferred to a beneficiary of the trust, the transfer will be taken to have been a transfer to the beneficiary of property in which the beneficiary had a beneficial interest. The Commissioner must be satisfied that the land the subject of the transfer—

was transferred to the beneficiary pursuant to the trust; and

is identifiable as property in which the beneficiary had a fixed beneficial interest contingent on, and arising from, the division.

4—Amendment of Schedule 2—Stamp duties and exemptions

This clause recasts exemption 26, which appears in the list of general exemptions from all stamp duties in clause 16 of Schedule 2 of the Stamp Duties Act 1923. The exemption as recast makes it clear that the exemption applicable to instruments relating to the creation and redemption of certain interests in the property of a superannuation fund does not operate so as to exempt a conveyance or transfer of property into or out of the fund.

Schedule 1—Transitional provision

1—Transitional provision

This clause provides that the insertion of section 71(4b) operates both prospectively and retrospectively.

Debate adjourned on motion of Hon. D.W. Ridgway.