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13 January 2017

A slice of the pie – by family arrangement

Wills, Powers, Estates & Family Provision Claims
Victoria

Asked

In the event that the executors of an estate decide to draw up a deed of family arrangement to give two properties (which form part of the residuary) to one of the residual beneficiaries, is stamp duty payable on the transfer of such properties? And, if so, is the beneficiary or the estate liable to pay it?

Further to this, does it need to be stated who is liable to pay the stamp duty in the deed of family arrangement?

Thank you.

Answered

Thank you for the question.

The following is based on our Probate commentary.

Stamp duty

The transfer of property from a deceased estate is a dutiable transaction. Generally, a transfer, not made for valuable consideration, by the executor to the beneficiary in conformity with a will or arising on intestacy will be exempt from duty. Section 42 of the Duties Act 2000 sets out the exemptions to duty.

See specifically the following in Revenue Ruling DA.051:

The ‘All Assets’ approach 

This approach is applied to transfers of residuary gifts under a will (that is, gifts that remain after distribution of the specific gifts, often to a class of beneficiaries in set proportions) and to transfers of property on intestacy. 

A transfer is exempt to the extent of the beneficiary’s entitlement to the assets of the estate. Duty is imposed on the amount by which such entitlement is exceeded.

CGT

The usual rule is that a change of ownership due to death is not normally a capital gains tax event.

The move of the asset to the beneficiary through the personal representative is not a disposal. The gain or loss is taxable when next disposed of.

The following section of the 1997 Income Tax Assessment Act is reproduced as a reminder of the circumstances in which the usual CGT rules apply to changes made by deeds of family arrangement and by deduction when they do not apply.

Section 128.20(1)(d) of the 1997 tax Act defines when an asset passes to a beneficiary under a deed of arrangement as follows:

(1) A CGT asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset:

...

(d) under a deed of arrangement if:

(i) the beneficiary entered into the deed to settle a claim to participate in the distribution of your estate; and

(ii) any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that formed part of your estate. 

Regards

Mentor