LPLC has received claims against practitioners who expected a duty exemption on the transfer of farming real property but failed to meet all the necessary criteria, resulting in the exemption being denied
Section 56 of the Duties Act 2000 (Vic) (the Act) sets out the conditions to be met for a transfer of a farming real property to be exempt from stamp duty. It specifies the types of transferors and transferees, including certain trustees of fixed and discretionary trusts, allowed by the exemption.
When acting on the transfer of a family farm, practitioners need to explain the duty consequences and structuring options to the client, and document that advice. If the practitioner does not intend to give that advice, they should inform the client of the risk and the need for advice from another expert. This should be clearly documented in a limited retainer.
In one claim, a practitioner acted for a company trustee of a family trust and its director in the purchase of a farming property from the director’s grandfather. A bank referred the clients to the practitioner.
Shortly after the referral, the bank informed the practitioner that the mortgage documents had to be re-drawn because it would provide finance only to the company and not the grandson personally. The practitioner told the bank that because the company was a trustee, stamp duty would be payable if the family farm exemption did not apply under section 56 of the Act. This would depend on how the trust was structured.
A few days later the practitioner received the contract of sale in the company’s name and arranged a meeting with the grandson. The practitioner said that despite orally warning that the exemption may not apply, the grandson signed the documents. According to the practitioner, the grandson said his accountant had advised him that the exemption would apply. The practitioner was not given any trust documents to review.
After settlement, the State Revenue Office (SRO) said duty was payable. The capital beneficiaries were not limited to natural persons who were relatives of the transferor and so the exemption in section 56 did not apply.
The grandson subsequently said his accountant did not provide advice on eligibility for the exemption and he relied on the practitioner for that advice. The practitioner was exposed to a claim. There was no clear evidence (confirmed in a file note and writing to the client) that the risk was raised with the client and the client directed the practitioner not to advise on the specific duty exemption requirements under section 56. In addition, in this case the practitioner had not documented his discussions with the grandson regarding the accountant’s advice.
LPLC also had claims where the file operator misunderstood the nature and effect of the relevant trust and consequently eligibility for the exemption. Practitioners should always check the criteria in the legislation and review all documents, such as trust deeds, for compliance.
More information can be found at the SRO’s webpage Family farm exemption.
