I have an attorney friend and client who was about to buy a residential property for rental and quite rightly wanted it to be owned by a company within a trust. The problem was that he didn’t have a trust yet and in those days we didn’t have shelf trusts. He needed to sign the deal straight away and asked my advice.

I advised him to sign the deal on behalf of a “company yet to be formed”, then form the trust, then form the company with the trust as the owner. He didn’t take my advice and ended up paying transfer duty twice!

Here’s why –

He bought a shelf company and signed the deal in the name of the company with himself as the shareholder. He paid Transfer Duty to get the property into the name of the company.

Then he formed a trust and sold his shares in the company to the trust. Problem! The sale of shares in a company that owns residential property is deemed to be a sale of the property itself and attracts Transfer Duty, so he had to pay again.

We were both wrong, because when you sell the shares of a residential property company, it is the shares that are deemed to be property for Transfer Duty purposes, not the property itself In this case the shares are worth nothing because the company had an asset, the property and an equal liability to him, for the money he lent to the company to buy the proeprty.

Should you wish to make an appointment, please feel free to visit Derek’s diary and book a time that suits you.