Unit Trust

[eco_wizz]

Hey all,

First timer user here, loooong time reader - was hoping to get a hand with a legal qn thats part of a finance assignment. I know theres quite a few 'trusts' experts on board, so hopefully this makes sense to somebody!

XYZ Company as Trustees for XYZ Unit Trust are purchasing an owner occupied business premises in NSW.

Part of a really long qn asks for 'an outline of the land title office requirements'.

Any idea what this means in NSW, say vs another state?

Thanks heaps in advance!

 

[Terry_w]

No special land title office requirements in NSW. No need for them to know that a trust is involved. Trustee name goes on title.

(and no one would really buy an owner occupied commercial premises in a trust as if the business goes under the property will be lost. A separate trust would be set up and the trading company would lease it from this trust - or SMSF).

 

[eco_wizz]

Thanks Terry, appreciate it.

So on the title it'd be XYZ Company, and there'd be no mention of the trust.

Do you know whether OSR (State Revenue) office will have any title requirements? My reading is that they'll just need a copy of the trust agreement between XYZ Company and XYZ Unit Trust.

 

[Terry_w]

Thanks Terry, appreciate it.

So on the title it'd be XYZ Company, and there'd be no mention of the trust.

Do you know whether OSR (State Revenue) office will have any title requirements? My reading is that they'll just need a copy of the trust agreement between XYZ Company and XYZ Unit Trust.

No, OSR won't know of the existance of the trust - until they are told for land tax purposes.

If is the LPI that deals with registration of title and they won't know or care about the existance of a trust..

Don't forget a trust is not a legal person - it is just a relationship in equity.

 

[Paul@PFI]

Hey all,

XYZ Company as Trustees for XYZ Unit Trust are purchasing an owner occupied business premises in NSW.

Land Titles will only register title in the name of the legal owner XYZ PL . That must be a person (or company). The Trustee relationship is blind. However in many states it is very wise to ensure that the contract is made in the name ABC P/L As Trustee For The ABACUS Trust so that there cannot be uncertainty to the identity of the contracting party. Land titles will ignore the words "As Trustee For...." For example might ABC P/L have been acquiring as its additional capacity as the Trustee of the Abacus Family Self Managed Fund ??

A common question follows how can there be certainty that the Trust then owns the property ?? After all doesnt the company own the property ?? Maybe...But
1. The contract should evidence the trust relationship. This can limit such a dispute. In fact OSR may rely on that contract as proof that duty wasnt payable if ABC PL created a trust over company land.
2. The Trust will account for the property acquisition in its accounting and tax records.
3. Its unwise for a trading company to act as a trustee company as creditors may seek to claim the trust property.

This issue can occur in SMSFs which are a form of Trust. Lets assume Mum & Dad Kettle are the human SMSF Trustees. (Not clever but legal!!) Title to property will be in Mum & Dad's names. No mention of the SMSF. How can the SMSF auditor be satisfied it has title and not Mum & Dad ??? The common audit approach is the the SMSF should obtain a caveat that notes the SMSF interest. Its not a form of title as such but helps to evidence the rust interest together with the accounting records. Without it there may be a SMSF compliance concern with demonstrating that mum & dad are holding the asset "on trust". ie they are holding the property in their capacities as members rather than in capacity as a trustee.

Unit Trusts in NSW are obliged to report all unitholders to OSR or every dollar of land value is subject to land tax as a special trust. So its logical that the fixed unit trust [(s31(3B)) Land Tax Management Act NSW] declares the trust relationship to OSR to save money. This is a further example of "other evidence" that supports the view that the asset is held on trust.

 

[eco_wizz]

Thanks Terry, Paul.

So what im getting from this is:

1. No need to declare trust relationship to land titles office. In fact, they'll ignore it on the title.

2. It is also not necessary to declare trust relationship to OSR. However, it is advisable to declare trust relationship for land tax purposes. It is best to do this by putting XYZ Company as Trustees for XYZ Unit Trust on the title as it is the best evidence for trust relationship. At the very least, should disclose trust relationship for land tax purposes.

3. The owner of the property is actually XYZ Unit Trust, despite the title being in the name of XYZ Company. This is a result of the trust 'relationship' between the company and the trust (apologies, im a little slow with understanding how trusts work!!)

4. The borrowing entity (from a finance perspective) will be XYZ Company as Trustees for XYZ Unit Trust. That is, the trust relationship must be disclosed to the lender.

 

[Terry_w]

Thanks Terry, Paul.

So what im getting from this is:

1. No need to declare trust relationship to land titles office. In fact, they'll ignore it on the title.

2. It is also not necessary to declare trust relationship to OSR. However, it is advisable to declare trust relationship for land tax purposes. It is best to do this by putting XYZ Company as Trustees for XYZ Unit Trust on the title as it is the best evidence for trust relationship. At the very least, should disclose trust relationship for land tax purposes.

3. The owner of the property is actually XYZ Unit Trust, despite the title being in the name of XYZ Company. This is a result of the trust 'relationship' between the company and the trust (apologies, im a little slow with understanding how trusts work!!)

4. The borrowing entity (from a finance perspective) will be XYZ Company as Trustees for XYZ Unit Trust. That is, the trust relationship must be disclosed to the lender.

sort of.

A trust is not a person and not a structure and not an entity, but it is a relationship between a trustee and beneficiaries. For conveniance it is referred to as if it is a structure though. In tax legislation it is taxed as a separate entity.

1. No details are recorded

2. OSR has 2 roles. Collecting duty on the transfer of land - not relevant whether a trust relationship exists. Collecting land tax - relevant and the trust needs to be declared

3. The owner of the property is the trustee, ie. XYZ Pty Ltd. XYZ Pty Ltd owns the property as trustee on behalf of all the beneficiaries.

4. The borrower will be XYZ Pty Ltd. A trust doesn't exist so it cannot borrow. Usually XYZ Pty Ltd wll borrow as trustee for the trust.
There is no reason to tell the lender about the trust relationship really. But new AML antimoney laundering legsiation now requires this to be disclosed.

 

[Paul@PFI]

sort of.


2. OSR has 2 roles. Collecting duty on the transfer of land - not relevant whether a trust relationship exists. Collecting land tax - relevant and the trust needs to be declared
.

The contract is best made in the full names and capacities of all parties ie ABC PL as Trustee for the ABC Unit Trust. NSW Land Tiles will ignore all the bits after ABC Pty Ltd. If push comes to shove and there is a OSR concern that the Company bought the property and later created a trust (ie stamp duty round 2) then the original contract will refute this.

There are a large number of buyers who buy land in the name ABC Pty Ltd who later think a trust should have been used. So they create a stamp duty trigger for transfer duty round #2 and argue that when they bought in ABC PL name it was in its capacity as trustee. OSR eyebrows get raised ;-) Making the contract in the correct name from the start avoids that discussion. Its not essential however.

That said its not essential. The trust relationship is fairly blind. I say "fairly" as lots of disclosure and partes do want to know eg : lender will use the trust ABN and TFN for trust. ACN for company is virtually irrelevant. Loan application docs alone would / should satisfy OSR who the intended owner will be.

 

[Terry_w]

Yes good point about the OSR. Signifying the trust on the contract will remove doubt. There are some people who later claim there was a trust all along when there wasn't.

 

[peterabz]

The following steps should be taken to make it clear that an
asset was acquired for the trust:

- The Contract for Sale should record that the purchaser
enters into the contract as trustee of the trust.

- If the purchaser is a company, the minutes of meeting of
the company should show that the trustee agrees to hold
the property on trust, that the trust has acquired the
asset and how the purchase price was paid out of the
assets of the trust.

-The financial accounts of the trust should reflect the
arrangement that the asset is being purchased and held
as an asset of the trust.

- All costs and expenses for the property should also be
paid from the trust's bank account and signed off by the
directors. The bank accounts should be set up as "ABC
Pty Ltd as trustee for the ABC Trust".

 

[Paul@PFI]

Peterabz...Good point about the bank account too.

 

[Terry_w]

Good point and one often overlooked by people.

I often see people in my finance broking practice who have set up a trust and already purchased years ago. They come to me for finance and I did a little and find the deposit has been provided by them individually. There is no trust bank account in existance and no minutes have ever been done -ever!