On 6 April 2023, Revenue NSW amended paragraph 9 of Ruling DUT 046 – Deceased Estates1 to remove what seems to have been an inadvertent error. Whilst the amendment is ostensibly minor (involving the deletion of two characters), good faith reliance on the former wording could have materially adverse consequences for certain beneficiaries of deceased estates in NSW.
DUT 046 sets out the Chief Commissioner of State Revenue’s (the Chief Commissioner) approach in applying section 63 of the Duties Act 1997 (NSW), which provides concessional duty for certain transfers of dutiable property by the legal personal representative of a deceased person to a beneficiary.
Concessional duty of $50 under section 63 applies to transfers of dutiable property:
- made under and in conformity with the trusts contained in the will of the decreased person or arising on an intestacy (section 63(1)(a)(i));
- the subject of a trust for sale contained in the will of the deceased person (section 63(1)(a)(ii); or
- that are an appropriation of the property of the deceased person in or towards satisfaction of the beneficiary’s entitlement under the trusts contained in the will of the deceased person or arising on intestacy (section 63(1)(a)(iii)).
Paragraphs 7 to 16 of DUT 046 describe the application of section 63 to transfers of dutiable property of the kind enumerated above and include illustrative examples thereof.
Relevantly, paragraph 8 contains two examples of how section 63 applies to transfers of dutiable property of the kind described at (a). The facts of those examples can be summarised as follows:
A & B are entitled to the residue of an estate comprising the following two properties in equal shares:
- Gosford property - $2m; and
- Newcastle property - $3m.
A & B enter into an arrangement whereunder the Gosford property will be transferred to A and the Newcastle property to B.
A & B are entitled to the residue of an estate comprising the following property in equal shares:
- Real property - $2m;
- Shares - $3m; and
- Cash - $1m.
A & B enter into an arrangement under which the real property and cash will be transferred to A and the shares to B.
In both cases, because the transfers were not in conformity with the applicable will, concessional duty of $50 under section 63(1)(a)(i) could not be assessed, although the appropriation concessional duty provision would be available, being section 63(1)(a)(iii). This provision provides for concessional duty for an appropriation of a deceased estate:
(iii) an appropriation of the property of the deceased person (as referred to in section 46 of the Trustee Act 1925) in or towards satisfaction of the beneficiary's entitlement under the trusts contained in the will of the deceased person or arising on intestacy
Additionally, paragraph 9 of DUT 046 formerly provided:
“In example 1 & 2 above, if the trustee exercising the power of appropriation, appropriates the specific assets, then section 63(1)(a)(iii) will apply, and nominal duty will be payable.”
Revenue NSW has now amended paragraph 9 to delete the reference to example 1:
“In example 2 above, if the trustee exercising the power of appropriation, appropriates the specific assets, then section 63(1)(a)(iii) will apply, and nominal duty will be payable.”
The rationale for the amendment appears to be that the unequal value of the assets under example 1 would mean that some portion of the dutiable value of the dutiable property transferred would not be referable to the beneficiary’s entitlement and that ad valorem duty (over and above the $50 chargeable under section 63(1)) would apply to the excess.
The former (erroneous) reference to example 1 is potentially problematic for beneficiaries of deceased estates who relied in good faith thereon., notwithstanding that the Chief Commissioner is bound to follow revenue rulings issued. This is because, despite amending the wording of DUT 046, the Chief Commissioner has not changed the date of issue or the effective date of DUT 046, indicating a potential exposure to unfavourable reassessments.
Conversely, from the perspective of the Chief Commissioner, awareness of the error may prompt beneficiaries who were assessed to ad valorem duty in a manner inconsistent with DUT 046 as it was worded prior to 6 April 2023 to lodge objections thereto pursuant to Part 10 of the Taxation Administration Act 1996 (NSW).