The NSW Court of Appeal decision in Sayden P/L v Cheif Cmmr would have to concern many investors with a unit trust together with a significant number who have used various forms of "fixed trust" such as land tax unit trusts in the past. In that decision the taxpayer had a unit trust that wasnt consiered a fixed trust. Hence to receive the tax free threshold for land tax, the trust deed was amended. The court considered those amendments failed to create a fixed trust. The unit trust wasnt a fixed trust and so $6,000 more land tax has to be paid annually.
How ?
Clause 4 : The trustee had discretion over wnding up the trust. No apparent mechanism permitted unitholders to call for winding up.
Clause 9 : Unit holders had no "absolute right of redemption" The trustee had power under clause 9B to refuse a request to redeem. I call it the "trustee discretion problem".
Clause 6 allowed trustee to issue another class of units often referred to as "special units" to dilute present entitlements. (I would argue the trust could be a Hybrid unit trust NOT a fixed trust)
etc...
This is an emerging problem for not just NSW unit trusts but also for many unit trusts which hold SMSF property in accordance with SISR 13.22. A few years back a comprehesive review of many unit trust deeds in the market being purchased by accountants, lawyers and planners indicated most contained terms which were consistent with Clause 9. That appears fatal for a land tax unit trust in NSW and may yet be found fatal for a SMSF especially if a trustee can limit redemption values to cost or to value whic is not a proprtion of the market value of the trust at the time of the event. The Commissioner hasnt yet formed an opinion but has been considering the problem.
One major provider of trust deeds sold me a NSW fixed unit trust that contained some clauses which OSR even agreed were inconsistent with a NSW fixed trust. And they dont appear to have told practitioners. If they did they didnt tell me and I bought one. 40+ pages of A4 toilet paper.
Lets not misunderstand things :
1. The ATO position hasnt changed. They still have no idea if clauses which allow a trustee to refuse to redeem units owned by a SMSF trustee or which allow valuation of the units to be at some price which does not reflect present market value.
2. The NSW OSR havent yet indicated how they will apply the decision in Sayden.
3. What will Victoria do. They were the state the started the whole "fixed unit trust" problem way back.
4. This issue for now should only affect NSW landowners using a unit trust.
In the meantime as an accountant with shelves of ticking timebombs what should I do? I would seek some guidance. Not from the firm that sold the deed - You can imagine what their response will be. Instead I would seek the views of Macquarie Group Services. www.macquariegs.com.au
MGS is a private company that provides deeds and services to accountants and lawyers + planners. Its got no links to that well known bank. I used to work there and know Chris Batten is on top of this. Most deeds CAN BE AMENDED. But this case indicates it has to be perfromed correctly cause in Sayden's case it wasnt and it ended up with a failed appeal. Chris has the OSR ruling on his deed AND amending clauses.
Like Bamford, I would also be digging out every NSW unit trust deed and checking which trusts own land. For SMSFs I would want to pay attention to redemption rights that use anything except an absolute entitlement. I would want to be sure the deed is OK before OSR ask for a copy and seek to amend the past 4 years at $6,000 a year.
Anybody else got any good ideas on who else currently sells a trust deed that works in NSW with absolute entitelement based on market value, no trustee discretion problems AND a OSR Ruling?? The MGS deeds arent cheap but are good.
How ?
Clause 4 : The trustee had discretion over wnding up the trust. No apparent mechanism permitted unitholders to call for winding up.
Clause 9 : Unit holders had no "absolute right of redemption" The trustee had power under clause 9B to refuse a request to redeem. I call it the "trustee discretion problem".
Clause 6 allowed trustee to issue another class of units often referred to as "special units" to dilute present entitlements. (I would argue the trust could be a Hybrid unit trust NOT a fixed trust)
etc...
This is an emerging problem for not just NSW unit trusts but also for many unit trusts which hold SMSF property in accordance with SISR 13.22. A few years back a comprehesive review of many unit trust deeds in the market being purchased by accountants, lawyers and planners indicated most contained terms which were consistent with Clause 9. That appears fatal for a land tax unit trust in NSW and may yet be found fatal for a SMSF especially if a trustee can limit redemption values to cost or to value whic is not a proprtion of the market value of the trust at the time of the event. The Commissioner hasnt yet formed an opinion but has been considering the problem.
One major provider of trust deeds sold me a NSW fixed unit trust that contained some clauses which OSR even agreed were inconsistent with a NSW fixed trust. And they dont appear to have told practitioners. If they did they didnt tell me and I bought one. 40+ pages of A4 toilet paper.
Lets not misunderstand things :
1. The ATO position hasnt changed. They still have no idea if clauses which allow a trustee to refuse to redeem units owned by a SMSF trustee or which allow valuation of the units to be at some price which does not reflect present market value.
2. The NSW OSR havent yet indicated how they will apply the decision in Sayden.
3. What will Victoria do. They were the state the started the whole "fixed unit trust" problem way back.
4. This issue for now should only affect NSW landowners using a unit trust.
In the meantime as an accountant with shelves of ticking timebombs what should I do? I would seek some guidance. Not from the firm that sold the deed - You can imagine what their response will be. Instead I would seek the views of Macquarie Group Services. www.macquariegs.com.au
MGS is a private company that provides deeds and services to accountants and lawyers + planners. Its got no links to that well known bank. I used to work there and know Chris Batten is on top of this. Most deeds CAN BE AMENDED. But this case indicates it has to be perfromed correctly cause in Sayden's case it wasnt and it ended up with a failed appeal. Chris has the OSR ruling on his deed AND amending clauses.
Like Bamford, I would also be digging out every NSW unit trust deed and checking which trusts own land. For SMSFs I would want to pay attention to redemption rights that use anything except an absolute entitlement. I would want to be sure the deed is OK before OSR ask for a copy and seek to amend the past 4 years at $6,000 a year.
Anybody else got any good ideas on who else currently sells a trust deed that works in NSW with absolute entitelement based on market value, no trustee discretion problems AND a OSR Ruling?? The MGS deeds arent cheap but are good.
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