The recent decision of Tay v Chief Commissioner of State Revenue [2017] NSWSC 338 shows some of the potential tax liabilities that beneficiaries of an estate can be exposed to.
The Key Facts
- Tee Peng Tay (Deceased) died leaving an estate valued at over $1.7 billion SGD.
- The Deceased owned shares in three private companies, including 60% of the shares (shares) in Memocorp Australia Pty Ltd (Memocorp). Other members of his family owned the remaining 40%. Memocorp was an Australian company and a landholder for the purposes of the Duties Act 1997 (NSW) (Duties Act).
- Apart from some bequests to two children and a university, the Deceased's will stated that all of his assets should be sold, with the proceeds distributed to his four other children in specified percentages.
- The four children wished to preserve their father's legacy by retaining the companies intact, instead of selling them and taking the proceeds.
- The four children entered into a deed of family arrangement (DOFA) in which it was agreed that:
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- three of the children would each obtain 100% of the shares in one of the Deceased's companies, effected by:
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- appropriating the Deceased's shares in each company to the applicable child;
- the other shareholders of each company transferring their shares to the applicable child; and
- balancing payments being made based on the value of each company and the proportion of the estate that was left to each child under the will; and
- the fourth child would obtain cash.
- The parties transferred the shares in accordance with the DOFA. This included a transfer of the shares (transfer) by the executors of the estate to one of the children, Chwan Yi Tay (Tay).
- The Commissioner assessed Tay with landholder duty and interest in the amount of $27,949,508.75 arising from the Transfer.
The Duties Act
- Chapter 4 of the Duties Act charges duty on a person that acquires a significant interest in a landholder.
- Under section 163A(d) of the Duties Act an exemption to landholder duty applies if:
the interest was acquired solely
as the result of the distribution of the estate of a deceased
person, whether effected in the ordinary course of execution of a
will or codicil or administration of an intestate estate or as the
result of the order of a court, made under Chapter 3 of the
Succession Act 2006 or otherwise, varying the application of the
provisions of a will or codicil or varying the application of the
rules governing the distribution of the property of an intestate
estate
The Issues
- It was agreed that Tay, pursuant to the transfer, acquired a significant interest in a landholder.
- The question was whether the exemption to landholder duty in section 163A(d) applied to the transfer.
The Court
- The Court found that landholder duty was payable as the exemption did not apply.
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- The fact that the parties entered into the DOFA did not mean that the Transfer was not a result of the distribution of the estate in the ordinary course of execution of the will.
- However, Tay became the owner of the shares as a result of both:
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- the distribution of the estate; and
- the other beneficiaries consenting to the transfer, surrendering their right to a proportion of the shares, and agreeing to the additional transfers under the DOFA.
- The Court focussed on the word "solely" in section 163A(d). It was not enough that the direct or the immediate cause of the Transfer was the distribution of the estate; in Tay's case there was a second cause.
- The exemption did not apply because Tay did not become the owner of the shares solely as a result of the ordinary distribution of the estate under the will.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.