The NSW Supreme Court’s decision in Tay v Chief Commissioner of State Revenue  NSWSC 338 (“Tay case”) is an example of how distribution of the deceased’s estate to beneficiaries may create unfortunate tax consequences for the beneficiaries. Usually, a stamp duty exemption will apply to the distribution of an estate if it is done in accordance with the will of the deceased. In the Tay case, the beneficiaries under the will agreed to a particular manner of distribution of an asset which led to duty of $28 million.
Mr Tay, a successful businessman passed away in Singapore leaving a family business and a substantial share portfolio in Singapore, China, Hong Kong and Australia, valued in excess of SGD1.7 billion. The deceased owned around 60 percent of the shares in his family’s company which was incorporated in Australia (“the Company”). The Company held investment properties in Australia and was a major asset of the estate. Mr Tay’s Will provided that the residuary estate, which included the shares in the Company, shall be given to the trustees of the estate to sell and then distribute the net sale proceeds among Mr Tay’s children in certain proportions. Probate of the Will was granted in Singapore and resealed (confirmed) in NSW. Instead of selling the Company shares, the trustees and beneficiaries of the estate agreed to keep the Company shares. To enact this, all beneficiaries entered into a deed of family arrangement (DoFA) where all of Mr Tay’s shares in the Company were transferred to one beneficiary, his son CY Tay, in partial satisfaction of the son’s 29 per cent share in the residuary estate.
CY Tay lodged the share transfer for stamping expecting to pay $50 and received a surprising assessment for around $643,000 in stamp duty and $28 million in landholder duty. CY Tay appealed to the Court claiming: (1) the deceased estates exemption from share transfer duty should apply because the share transfer was the subject of a trust for sale contained in the Will, or an appropriation of the shares towards satisfaction of his entitlement under the trust contained in the Will; and (2) landholder duty exemption should apply because the shares were acquired solely as the result of the distribution of his father’s estate effected in the ordinary course of execution of the Will.
The Court agreed with CY Tay on the first point and ordered that the deceased estate exemption applied to the share transfer. The Court held that the DoFA did not vary the trust to sell in the Will and all beneficiaries consented to the appropriation of the Company shares towards satisfying CY Tay’s entitlement under the Will. On the second point, the Court disagreed with CY Tay and confirmed that the landholder duty was payable. The Court concluded that the Company shares were transferred to CY Tay not solely as a result of the distribution under the Will but primarily in accordance with DoFA. The case has been appealed to the NSW Court of Appeal; decision pending.
Although share transfer duty was abolished in NSW in July 2016, a scenario in the Tay case could arise when leaving real estate to a beneficiary and could lead to stamp duty consequences. When making a will you should consider discussing your wishes with the beneficiaries and prepare a suitable will which can ultimately minimise tax consequences for beneficiaries.