The recent Victorian Civil and Administrative Tribunal (VCAT) case of Aston (Aust) Property Pty Ltd v Commissioner of State Revenue (Taxation)  VCAT 48 reminds us of the importance of paying settled sums and maintaining proper trust records to ensure the validity of a trust.
In Aston, the Tribunal denied tax benefits that would otherwise be available to trusts by finding that the trusts did not in fact exist because the settled sum had not been paid and the documents had not been executed.
In the case of Aston, Mr Nicholas Corcoris was a property investor who purchased properties through trusts, the trustees of which were the appellant companies. Mr Corcoris was a director and shareholder of most of these companies. He also prepared the trust deeds himself, without the help of professionals.
Mr Corcoris and other entities associated with him objected to assessments made by the Commissioner of State Revenue. They alleged the Commissioner wrongly assessed transfers of property on the basis that the Commissioner did not have regard to the fact that the properties were held in trust.
Mr Corcoris stated that all the trusts were created before the relevant property settlements in which the purchaser companies received the transfers of land in their capacity as trustees.
The Tribunal found in favour of the Commissioner. The Tribunal found that the trusts Mr Corcoris created were not appropriate and were only designed to satisfy the regulatory requirements of the Commonwealth Authorities and the Commissioner of State Revenue. The Tribunal was sceptical given that Mr Corcoris created the trusts each time he purchased or transferred a property.
More importantly, the Tribunal held that:
- For each trust, there was no evidence of the payment of a settled sum to establish the trust.
- Mr Corcoris could not point the Tribunal to the existence of any trust deeds. Instead, Mr Corcoris could only say that he believed that the terms of trusts could be incorporated by implication from the terms of a standard document which he had acquired from "Express Company Services" before 1994.
- There were a large number of errors and inconsistencies in the trust schedules, execution pages and associated minutes.
- The transactions were entered into by companies that did not exist at the time.
- Because there were no trust deeds, there was no evidence of any undertakings by the trustee to hold the transferred property for the unit-holders – therefore, each trust lacked certainty of intention, which is an essential element for any enforceable trust.
On the basis of the above, the Tribunal concluded that the trusts did not exist and the appellants were not entitled to any tax benefits that would have otherwise been available to the trustee companies in the purchase and transfer of the properties.
The case of Aston reminds us that when establishing a trust, you need to ensure compliance with the formalities and ensure that set processes are followed with care and precision. The Tribunal had little empathy for the appellant's mistakes in setting up the respective trusts.
Failing to pay the settled sum or failing to show that the trust deed is complete and properly executed may result in the trust being invalid, open the trustee to potential liability. It may also create a barrier to tax and other benefits associated with having a trust.
The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.