Difference Between Queensland and NSW
The key distinction is that Queensland has a specific small business restructure transfer duty exemption that may apply when assets are moved from a discretionary trust into a company. New South Wales generally has no equivalent concession. However, NSW usually has a narrower duty base for ordinary business assets, so a NSW restructure may attract little or no duty if no land or other dutiable property is transferred.
- Queensland
In Queensland, a transfer of dutiable property from the trustee of a discretionary trust to a company is generally a dutiable transaction. Queensland transfer duty can apply not only to land, but also to certain business assets. This means that a business restructure from a discretionary trust into a company may create duty exposure even where the business does not own land.
Queensland’s main concession is the small business restructure exemption. It can apply where a small business restructures from a sole trader, partnership or discretionary trust into a company. For discretionary trusts, the exemption generally requires the relevant beneficiaries of the trust to become shareholders of the company. In particular, the default beneficiaries are important because they are usually treated as holding the relevant interests in a discretionary trust for duty purposes.
The exemption is subject to strict conditions. It will generally not apply if:
- the transferred assets have an unencumbered value exceeding $10 million;
- the transferor’s annual turnover exceeds $5 million;
- the transferee company has previously traded;
- the transfer is between companies;
- assets are transferred out of a company; or
- the assets are investment property rather than active business property.
The Queensland exemption is therefore aimed at genuine small business restructures, not passive investment restructures. It may assist where a family discretionary trust operates an active business and transfers that business to a newly incorporated company with substantially the same economic ownership. It is unlikely to assist where the trust holds passive rental property, investment land or an investment portfolio.
The exemption may be full or partial. A full exemption may be available where the same owners hold the same proportions before and after the restructure. A partial exemption may apply where ownership changes, existing interests are altered, or new owners are introduced. This can be complex for discretionary trusts because beneficiaries do not usually have fixed proprietary interests in the trust assets.
Queensland trust duty rules also need attention. Changes to a discretionary trust deed, particularly changes to default beneficiaries, may themselves have duty consequences. A person who becomes a taker in default may acquire a trust interest. Although Queensland has some exemptions for family discretionary trusts, those exemptions do not automatically remove duty on a transfer of assets from the trust to a company.
Queensland also has corporate reconstruction relief, but that regime is different. It is mainly directed at transactions between companies in the same corporate group. It will not usually apply to a simple transfer from a discretionary trust to a newly incorporated company merely because the same family controls both structures.
- New South Wales
NSW approaches the issue differently. NSW transfer duty is generally more focused on land and specific dutiable property. Many ordinary business assets, such as goodwill, intellectual property, business names, customer contracts, stock and plant, may not attract transfer duty in NSW if no land or other dutiable property is transferred.
Accordingly, a NSW trading business operated through a discretionary trust may be able to transfer its non-land business assets to a company with little or no transfer duty. In that respect, NSW may be more favourable than Queensland for businesses that do not own land.
The position changes if the trust owns NSW land. A transfer of NSW land from the trustee of a discretionary trust to a company will generally attract ad valorem transfer duty based on the unencumbered value of the land. NSW does not provide a general exemption merely because the same family controls the trust and the company, or because the restructure is undertaken for succession planning, asset protection, tax-rate management or commercial simplification.
NSW corporate reconstruction relief may sometimes be relevant, but it is not usually available for a simple discretionary-trust-to-company restructure. Those rules are directed at transactions within corporate groups. Even if the trustee is a company, the relevant assets are trust assets, not necessarily corporate group property.
For investment groups, NSW will usually impose duty if NSW land is transferred from a trust to a company. If the trust holds only non-dutiable assets, such as cash, loans or some financial assets, transfer duty may not arise. However, landholder duty must be considered where the restructure involves interests in landholding companies or unit trusts.
- Business Restructures
For an active business with no land, NSW may be more favourable because many business assets are outside its transfer duty base. Queensland may impose duty more readily, but its small business restructure exemption may eliminate that duty if all conditions are satisfied.
For an active business with land, Queensland may be more favourable if the small business restructure exemption applies. NSW will generally charge duty on the land transfer unless a separate concession is available.
For larger businesses, Queensland’s advantage may disappear because the exemption is unavailable if turnover or asset-value thresholds are exceeded. In that case, Queensland may impose duty on both land and relevant business assets, while NSW may be limited mainly to land and specific dutiable property.
- Investment Restructures
For passive investment groups, neither State provides a broad exemption for transferring assets from a discretionary trust to a company. Queensland’s small business restructure exemption is directed at active businesses and generally does not apply to investment property. NSW similarly does not exempt land transfers merely because beneficial control remains within the same family or group.
A discretionary trust holding passive real estate will therefore usually trigger duty in both Queensland and NSW if the land is transferred to a company.
Conclusion
Queensland has a broader starting duty base but offers a valuable small business restructure exemption for qualifying discretionary-trust-to-company transfers. NSW has a narrower duty base for ordinary business assets but lacks an equivalent general exemption. For small active businesses, Queensland may be better if the exemption applies. For businesses without land, NSW may be simpler. For passive investment groups, especially those holding land, both jurisdictions will generally impose duty.
NOTE: The content of this article is for information purposes only and should not be relied upon, without specific legal advice.
For an obligation free discussion please call
Jim Wilson- senior solicitor
Owner, Better Business Lawyers- Gold Coast/Tweed
M: 0415 645121
E: jim@bblawyers.biz