Transfer Duty Concessions: Selling Properties to Your Own Super Fund
The Western Australian Duties Act 2008 was recently amended in relation to the sale of dutiable assets (e.g. land and buildings) to superannuation funds by their members.
Such transactions, when properly structured, may be liable to $20 nominal duty instead of full conveyancing duty.
Previously, the Duties Act did not provide a concession for a sale from a member to a “custodian trustee” under a bare trust arrangement. (A bare trust arrangement is required if a super fund is borrowing to make a purchase). Absent such a concession, it was necessary to make use of two separate existing concessions under the Duties Act, which was cumbersome and required careful drafting.
The new changes to the Act now solves this problem, but additional restrictions have also been introduced.
To qualify for nominal duty under the new provisions, membership of the fund has to be restricted to, or the asset quarantined for, the members who are selling the asset to the fund.
Under the old provisions, it was enough for the property to be held and provided as a retirement benefit to the relevant member. The provisions have now been extended to require that, in addition to the property, the income generated by, and the proceeds of sale from, the property must be used to provide those benefits. This has made the option of quarantining the asset more onerous, as compared to the option of restricting the fund membership.
An example of when a problem might arise is if contributions of other members are used to help fund the pensions payable to the selling members. Even if done inadvertently after the transaction is completed, where funds are unsegregated, the Fund trustee will become liable to full conveyancing duty at that point in time! The Office of State Revenue will need to be notified under pain of a $20,000 penalty.
It is likely that clients will choose to restrict fund membership to obtain nominal duty in these circumstances.
Of course, under either method, the result is that contributions by others cannot be used to assist in the funding of benefit payments. How benefit payments are to be met (and if the likely rent from the asset is going to be sufficient) should be carefully considered.