- The deceased estates exemption for landholder duty is narrower than the transfer duty deceased estates exemption in NSW. This point is currently being appealed to the NSW Court of Appeal.
- Care needs to be taken when beneficiaries propose to enter into a deed of family arrangement to adjust will bequests to prevent duty being triggered unintentionally.
- Whilst gifting a residuary estate in equal shares may appear ‘fair’, testators should be made aware that this may create income tax and duty issues later on when the deceased estate is distributed and beneficiaries want to take assets severally.
Beneficiaries of a deceased estate can sometimes be disappointed with their gifts. This sometimes occurs where a testator makes a will without consultation, or gifts their residuary estate to a number of beneficiaries in equal shares. In such situations thoughts go to whether the bequests can be varied by the beneficiaries entering into a deed of family arrangement (‘DOFA’) so as to give beneficiaries the assets which they actually want.
The main tax concerns which arise with a DOFA relate to whether the deceased estate exemptions for capital gains tax (‘CGT’) and stamp duty continue to apply so that no tax or duty liabilities are triggered when the executor distributes deceased estate assets to the newly nominated beneficiaries under the DOFA.
The CGT rollover for death should continue to apply, despite the DOFA, provided beneficiaries enter into the DOFA to settle their claims on the deceased estate and the only consideration they provide to obtain the varied gift is a waiver of their claims on other deceased estate assets (s 128-20(1)(d) Income Tax Assessment Act 1997).
However, the application of the deceased estates exemptions from stamp duty to DOFAs is more complicated as shown by the recent cases of Tay v Chief Commissioner of State Revenue  NSWSC 338 (‘Tay’) and Alexander v Chief Commissioner of State Revenue  NSWCATAD 180 (‘Alexander’).
Tay is currently on appeal to the NSW Court of Appeal. It is important because it:
- explores the concept of an ‘appropriation’ for the purposes of the transfer duty deceased estates exemption in s 63 of the Duties Act 1997 (NSW) (‘Duties Act’); and
- held that the deceased estates exemption from landholder duty in s 163A(d) of the Duties Act is much narrower than the transfer duty deceased estates exemption.
Alexander breaks no new ground but shows how transfer duty can unravel what is otherwise a simple family agreement on the distribution of estate assets.