Intergenerational Transfer Exemption – Requirement to have default capital beneficiaries for discretionary trusts
When considering transfers of primary production land, it is important to structure your affairs appropriately from the outset. Specifically, where discretionary trusts own the land or carry on a business on the land, planning is essential to minimise taxation and stamp duty implications.
Section 274 of the Duties Act 1997 (NSW) provides a stamp duty exemption for intergenerational transfers of primary production land. To be eligible for the exemption the Chief Commissioner must be satisfied that:
- the transferor (or the person directing the transferor) is a member of the family of the transferee; and
- the relevant land is used by a business carried on by a member of the transferee’s family (or an entity ‘controlled by’ such a family member).
Hence, when a discretionary trust is either the transferor or the entity that carries on the business on the land it is necessary to determine who directs the trust. Section 274(3)(d) recognises the ‘person directing the transferor’ to be persons who are entitled (as takers in default) to not less than a 25% interest in the capital of the trust, being an entitlement that existed for at least 3 years before the transfer, or from the date of establishment of the trust.
Where the discretionary trust has no takers in default in respect of the capital of the trust, Revenue NSW takes the view that there is no one that would qualify as a ‘person directing the transferor’.
Therefore, when a discretionary trust has no default capital beneficiaries, the intergenerational stamp duty exemption will not be available. Hence, when a discretionary trust either holds or carries on a business on primary production land, it is very important that default capital beneficiaries are included in the trust’s deed.
If you have any concerns about the terms of your current trust deed and the effect this may have on your estate plan, please do not hesitate to contact us.