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Double stamp duty

Discussion in 'Accounting, Tax & Legal' started by martin2408, 12th Jul, 2011.

  1. martin2408

    martin2408 New Member

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    Im new to this forum and have found it quite helpful. However, I have a question regarding double stamp duty, I hope someone can help.

    I have formed a new company with a unit trust deed to purchase a property. The deposit has been paid, however settlement is 6 months away, hence stamp duty has not been paid. I wish to issue shares to new shareholder before settlement (i do not intend to transfer shares, but instead issue new shares as equity raising for the company). Is there stamp duty applicable to these new shares?

    Thanks.
     
  2. Terryw

    Terryw Well-Known Member

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    Hi Martin

    What state is the company in?

    You would have to check the duties act of the state that the company is located in and see if the issuing of shares would be dutibale property.

    Since the company has no assets then you will probably find that even if it is dutiable property then there would be no stamp duty anyway as the shares would be worth only a fraction of the capital of the company - $2 often.

    And, are you sure you want to issue shares and not units? The company is only trustee so the shareholders would have no way to obtain a benefit other than by voting to control the trustee. But if they are not also unit holders they will not control the trust - the unit holders could just vote to change the trustee.
     
  3. martin2408

    martin2408 New Member

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    Thanks Terry, the company was incorporated in Victoria and you are correct, I meant to issue units not shares.

    The problem is my accountant and lawyer do not share the same views. My accountant says no double stamp duty but my lawyer maintains there is. Does this change as the company will be a land rich company?
     
  4. Terryw

    Terryw Well-Known Member

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    Hi Martin

    I think acquiring units in a unit trust would be acquiring an interest as defined in s77 Duties Act 2000 (VIC). Duties Act 2000 - SECT 77 How may an interest be acquired? .

    Acquiring an interest would be a relevant acquistion, s79
    Duties Act 2000 - SECT 79 What is a relevant acquisition?

    The liability for duty arises when the relevant acquistion is made, s78
    Duties Act 2000 - SECT 78 When does a liability for duty arise?

    The person making the relevant acquistion would be liable for the duty, s82.
    Duties Act 2000 - SECT 82 Who is liable to pay the duty?

    What did your lawyer say?
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I assume you've got a good reason for structuring things this way?

    Multiple investors?
     
  6. Terryw

    Terryw Well-Known Member

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    Sim

    I have come to view the unit trust structure as one of the best and most flexible available, even where only one investor is involved.

    Reasons:
    - If the unit trust is a fixed trust the land tax threshold may be able to be obtained,
    - The units could be owned by a discretionary trust to give asset protection and tax savings
    - The units can be easily transferred without worrying about ASIC forms and privacy etc
    - The trustee could redeem the units at some time in the future. The trustee may be able to borrow to buy these units and the interest would probably be deductible against the trust. (CGT would be payable on the sale of the units).
    - If the units are redeemed the trust could convert to a discretionary trust (depending on a few things).
    - Unit holders have an equitable interest in the trust property and can lodge a caveat - which could not happen with share holders of a company.
    - In some instances the units could be transferred to a SMSF at a later date, possibly without stamp duty.

    The biggest problem is trying to get finance.
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    In my experience this is actually very much a show-stopper, especially if you are seeking residential finance rates.

    If you're dealing with commercial or something unusual in the nature of the assets being purchased, it's a different ball-game anyway, so this type of structure probably wouldn't cause much issue.

    But for those people looking to maximise their borrowing capacity at cheaper residential rates, any "unusual" structure (ie something other than personal names or a discretionary trust with personal guarantees) is likely to cause significant obstacles to obtaining that finance.
     
  8. Terryw

    Terryw Well-Known Member

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    Many have been caught by setting up the structure and then finding out about the finance issues later, after exchanging. Ideally you should find out about the finance first. There is also the chance that lending policies change so something that is accepted now may not be accepted in the future.