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Welcome to the future of global investments! At SW, we’re proud to be part of the conversation at International Mining and Resources Conference (IMARC) and, as a long-standing partner, we are once again thrilled to be Silver Sponsors of the Mines and Money Investment Theatre. We’re delighted for the chance to connect with industry leaders and be part of shaping the global future of businesses and economies alike. 

Invest Today, Lead Tomorrow

Date: Tuesday 31 October – Thursday 2 November 
Location: International Convention Centre (ICC) Sydney, 14 Darling Dr, Sydney NSW 2000 
Time: 8.30am – 5pm daily  

SW is proud to be part of the conversation at IMARC for the sixth time, taking the lead on sustainable and equitable futures by sponsoring the Investment Theatre.

Join us as we hear from industry experts on all things Mining and Investments, including company updates and announcements from over 100 Junior Mining Corporates. 

Rick Hemphill, John Dorazio and Blayney Morgan will be introducing critical minerals and mining companies to the stage in the SW Investment Theatre. In addition, the team will facilitate several panel discussions and interviews as outlined below. 

Reimagining the future and reinventing the way we approach it.

Panel discussions

4.10pm Tues 31 October | Mines & Money Investment Theatre sponsored by SW

Interviewer:

Bessie Zhang, Partner, Assurance & Advisory, SW Accountants & Advisors

Interviewees:

Louis Chien, Director, ASF Group

Capital raising and attracting investment for junior exploration

1.45pm Thurs 2 November | Mines & Money Investment Theatre sponsored by SW

Interviewer:

Blayney Morgan, Partner, Assurance & Advisory, SW Accountants & Advisors

Panellists:

John Forwood, Director, Lowell Resources Funds Management 

Lucy McClean, Director, New South Wales, Victoria & Tasmania, AMEC  

Campbell Olsen, Founder and Chief Executive Officer, Arete Capital Partners 

Sarah Dulhunty, Capital Markets and Corporate Adviser, MinterEllison. 

Connect with the SW Accountants & Advisors team on the IMARC Connect app or in person next week to see how we can #opendoors for your business.

Australia’s first sustainability reporting standards are out! The Australian Accounting Standards Board (AASB) has issued the much anticipated exposure draft (ED).

The exposure draft contains Australian Sustainability Reporting Standards (ASRS) 1 and 2, both of which focus on disclosure of climate-related financial information.

This approach contrasts with the approach taken by the International Sustainability Standards Board (ISSB) that issued a general sustainability standard (IFRS S1) and a climate standard (IFRS S2). Whilst the ISSB standards were used as the baseline, the proposed Australian standards in ED format contain a number of differences. The key differences between the proposed Australian standards and the international equivalent are as follows:

The proposed standards will also be applicable to not-for-profit entities that meet the reporting criteria. However, the mandatory disclosure for not-for-profit entities will be less onerous than applies to for profit entities.

The Australian Parliament, rather the AASB, determined the entities scoped into the legislation. The AASB have included Treasury’s proposed roadmap, from its second consultation paper, for mandatory adoption of sustainability standards.

Treasury’s proposed roadmap for mandatory adoption includes:

Group 1 | 2024-25

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least two of the following:

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

Group 2 | 2026-27

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least two of the following:

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

Group 3 | 2027-28

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least two of the following:

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act.

ASRS Application Date

The AASB is proposing that ASRS 1, ASRS 2 and related references would be applied:

What we are advising our clients to do as next steps

You should also attend SW’s financial reporting webinar on Thursday 16 November to hear more about these proposed standards. Click here to register

How SW can help

Our team of audit and assurance experts are fully informed of the requirements of the sustainability accounting standards and can assist with providing guidance for your business, as well as keeping you abreast of developments from an Australian reporting context.

Reach out to your SW contacts or the key contacts here for a conversation.

Contributors

Jimmy Cao

James Serpell

Treasury has released for public comment an exposure draft of changes to the proposed thin capitalisation reforms.  The proposed changes do not go as far as many would have hoped, but certainly include some welcome amendments in relation to trusts.   

Significant reforms to the thin capitalisation regime were introduced in the Bill1 into the House of Representatives on 22 June 2023.  A detailed outline of the reforms contained in this Bill were provided in an earlier SW client alert.  The original Bill contained rules considered by many to be controversial. These issues were highlighted in submissions made by many stakeholders (including SW) to the Senate Economics Legislation Committee (Committee) as part of a review conducted on the impact of the Bill.  In response to this review, on 18 October 2023, Treasury has released in exposure draft form a further round of proposed amendments for public comment.  These amendments address some of the concerns raised in relation to the original Bill.   

We have summarised below the issues and recommendations made in the SW Accountants & Advisors submission to the Committee compared to the changes to the Bill that have been proposed by the exposure draft. 

Concerns raised with original Bill  Changes proposed in the exposure draft 
Trusts and partnership are excluded from applying the third-party debt test (TPDT) The Bill will be amended so that the TPDT also applies to trusts and partnerships 
Cross guarantees by member of the same group will preclude the application of the TPDT The conditions of the TPDT will be relaxed to allow recourse arrangements to be implemented in relation to assets held by other entities in the same obligor group 
Interest rate swap payments will not be deductible under the TPDT when the modified rules for conduit financing arrangements apply A deduction will now be permitted under the TPDT for the payments made under an interest rate swap when the modifications to conduit financing arrangements apply 
Foreign currency borrowings that are hedged and on lent under AUD loan terns will not satisfy the TPDT conditions when the modified rules for conduit financing arrangements apply No change proposed 
Trust distributions are excluded from the calculation of tax EBITDA for the fixed ratio test (FRT).  Furthermore, there is no ability for excess tax EBITDA of a subsidiary trust to be ‘pushed up’ to a head trust.  This means that property trusts with borrowing at the head trust would be severely disadvantaged with significant denial of debt deductions The FRT will be amended to permit certain subsidiary trusts to ‘push up’ their excess EBITDA to a parent trust that has at least a 50% interest in the subsidiary 
Proposed commencement date is 1 July 2023 (deferral requested) No change to the commencement date  

We have below provided a brief summary of the main proposed changes included in the exposure draft.  

Main changes  

Welcome amendments proposed for trusts  

The amount of excess EBITDA that may be transferred from the subsidiary entity will be the parent’s proportionate share of the excess.  Any amount of transferred EBITDA will also be taken into account in determining whether the transferee has any excess EBITDA, so that there may be successive ‘push up’ transfers in multi-tiered groups of eligible trusts.   

Third Party Debt Test (TPDT) 

Where the TPDT is being considered for ‘conduit financiers’, the modifications referred to above will broadly also apply to the conduit financier and entities that borrow from the conduit financier.  

Debt creation rules  

Commencement, application and transitional provisions 

Many submissions made to the Committee urged the Committee to conclude that the new measures, particularly the debt creation rules, be deferred until 1 July 2024.  However, the Committee has not adopted such recommendations, save for one exception.  The effective date for the thin capitalisation measures remains 1 July 2023, so that any income year starting on or after that date would be affected.  The one timing concession that is reflected in the new proposals is that for financial arrangements established before 22 June 2023, there is to be a one-year grace period in relation to the debt deduction creation rules.  However, the debt creation rules will apply to all arrangements (whether pre-existing or new) from 1 July 2024.   

SW comment  

The changes proposed to the thin capitalisation rules in relation to trusts are most welcome.  The changes proposed to the TPDT and the debt creation rules are positive, but many would have been hoping for changes of a more substantive nature.   

Should the legislation proceed, inclusive of the most recent round of proposed changes, the thin capitalisation rules changes and the new debt creation measures will represent significant changes to the tax law affecting multinational groups.        

We are now four months into the first year of operation of the new rules. Given these rules are still not settled, a 12-month deferral of the start date seemed appropriate. This, of course, will not be the case with the commencement date unchanged at 1 July 2023 (subject to the one exception noted for the new debt creation rules).   

However, consultation on the reforms continues with submissions in relation to the exposure draft changes closing on 30 October 2023.  

How can SW help?  

Given that the basic thrust of the new thin capitalisation regime remains unaltered, it is important that if you are affected by the new rules, you clearly understand how these arrangements are likely to impact your existing arrangements.  To understand how these measures and the proposed amendments referred to above may impact you, please contact your SW adviser or, alternatively, one of the contacts listed.  

Contributor

Ned Galloway

Increased administration and difficult deadlines will be a strong focus of employer and stakeholder concerns as consultation opens on Treasury’s broad design plans for Payday Super. 

As part of the 2023-24 Budget, the Federal Government announced that from 1 July 2026, super must be paid on payday, a change that will contribute towards a ‘dignified retirement for all Australians’. 

Treasury has released the Securing Australians’ Superannuation consultation paper (the Paper), which will remain open until November 3, 2023. The Paper provides a number of areas for consultation, including in relation to: 

It is intended that stakeholder answers will help inform the design of payday super implementation and compliance frameworks. 

SW fully supports the intended purpose of the payday super to address the drivers of unpaid SG. Material change is required to systems and processes in employers, clearing houses, superannuation funds and the ATO to deal with increased frequency of contributions (up to 13 times) and tighter deadlines. 

Treasury’s openness to considering a broad spectrum of issues is commendable, with few topics being excluded. If not designed well, there are also numerous aspects of the proposed design which may unduly increase the administrative and regulatory burden on employers. 

SW is preparing a submission to Treasury addressing practical issues for Australian businesses in designing and implementing the payday super frameworks. While there are many matters that deserve consideration, we highlight several key consultation topics below and welcome your insights and feedback: 

Employers who have conducted recalculations of pay and super will know that recalculations are rife with false discrepancies. It is proposed that under Payday Super, the ATO will recalculate superannuation obligations based on STP and superannuation fund reporting data. The ATO calculated superannuation shortfalls will result in “nudges” for employers to comply followed by assessments, moving away from the self-assessment system we currently have. 

Is it possible for the ATO to eliminate assessments resulting from false discrepancies, and if so, how might this be done? 

Treasury has suggested either deadline based on when payment is made, or one based on receipt by the superannuation fund. 

Superannuation is often a subsequent process to finalisation of a pay run, and can involve significant manual intervention (e.g. in successfully producing and submitting the SAFF file). 

Is a same day due date for payment or a three day deadline for payment into the superannuation fund realistic? If not, how long would employers need to complete processing and comply with deadlines? 

There are many circumstances that arise which can cause superannuation shortfalls, some of which outside the employers control. For example, incorrect superannuation fund details, or paid amounts being reclassified (e.g. an employee incorrectly claims overtime that is re-classified to ordinary pay).  

While proposed improvements in onboarding and superannuation stapling may reduce these instances, the increased frequency and tighter deadlines may result in more SG shortfalls. 

Currently, employers have the quarter and 28 days to correct issues that arise. 

Should there be a grace period which allows employers to correct shortfalls of superannuation? If so, what should be included as a concession in the grace period (interest, admin fees, income tax deductibility, SG calculations)? 

In addition, should the SGC calculation be made easier to assist with the administrative burden of compliance?  

How SW can help

While this has not been made law as of yet, we see a trend of increased transparency and compliance activity from the ATO in respect of superannuation compliance. In anticipation of these trends, or the proposed Payday Super changes, all employers should review the configuration of STP phase two reporting to the ATO as well as end -to -end superannuation processing to reduce the risk of superannuation shortfalls and review activity from the ATO or FWO.  

SW has designed an end to end offering which includes a review of time and attendance / payroll system configuration, and the use of advanced data analytics to test superannuation compliance and reporting to superannuation funds and the ATO.  

If you have any concerns with the proposed reforms or are interested to contribute to SW’s submission, please contact Paul Hum. 

Contributors

Eric Lay

Zainab Ayub

The Australian Taxation Office (ATO) has introduced five further legislative instruments aimed at reducing Fringe Benefit Tax (FBT) record-keeping obligations.  This is in addition to the four draft legislative instruments that we discussed in our earlier alert from March 2023.  

While the earlier legislative instruments focused on travel benefits, these new instruments broaden the scope to include other areas such as Living-Away-From-Home Allowances (LAFHA) and private use of vehicles other than cars. 

The ATO is progressively making it easier to comply with FBT obligations by offering more flexible record-keeping options. Employers now have a wider array of records they can rely on, which can be particularly beneficial for those who already maintain such records for other operational or compliance purposes. This not only simplifies the administrative process but also reduces the risk of non-compliance due to incomplete or missing employee declarations. 

Summary of key points from the five additional Legislative Instruments 

These legislative changes will take effect from 1 April 2024, and employers should prepare in advance to simplify their record-keeping. 

These new record-keeping options offer more flexibility and convenience for employers who already maintain such records for other operational or compliance purposes. They also reduce the risk of non-compliance due to incomplete or missing employee declarations.  

To simplify record-keeping in accordance with the new FBT legislative instruments, employers should undertake an assessment of their existing corporate records. This may involve: 

How SW can help

If you need any assistance in understanding how you can simplify your record-keeping in light of these draft legislative instruments, please contact your SW advisor Stephen O’Flynn or Rahul Sanghani. 

Contributor

Rahul Sanghani

The ATO has issued a new draft ruling which outlines and provides examples for when tax deductions for self-education expenses are available to individuals.

While the draft Ruling does not introduce significant changes, it provides greater clarity by detailing factors and examples that can be considered. Each taxpayer’s situation will determine the deductibility of their self-education expenses.

The draft ruling present numerous examples, the facts and circumstances of each taxpayer will determine if the expense:

The full draft Ruling can be viewed here.

For employers who subsidise or reimburse self-education expenses for their employees, it’s crucial to understand the implications of the “otherwise deductible” rule in the context of Fringe Benefits Tax (FBT). Under this rule, if an employee could have claimed a deduction for the self-education expenses had they incurred them personally, the taxable value of the fringe benefit provided by the employer can be reduced. This aligns with the principles laid out in TR 2023/D1, making it essential for employers to review the new guidelines to ensure that any benefits provided are compliant with both income tax and FBT laws.

Details

On 27 September, the Commissioner released draft Taxation Ruling TR 2023/D1, addressing the deductibility of self-education expenses incurred by an individual and replaces TR 98/9 which has been withdrawn from 27 September 2023.

The draft Ruling reflects the current rules following the changes in 2022 that removed the $250 non-deductible threshold for self-education expenses.  Therefore, self-education expenditure is deductible from the first $1 spent.

The Commissioner reinforces that self-education expenses will be deductible under section 8-1 to the extent that they:

A key focus of the draft Ruling is that self-education expenses will be incurred in gaining or producing assessable income if either or both of the following principles apply:

Principle 1

Where income-earning activities are based on the exercise of a skill or specific knowledge, expenses undertaken to maintain that knowledge or skill will be deductible.

The Commissioner notes following factors that the courts have determined when considering if expenses are incurred to maintain or improve knowledge or skills:

Principle 2

Where self-education will objectively lead to, or likely to lead to, an increase in income from your current income-earning activities, the expenses will be deductible.

The Commissioner notes following factors to assist in this determination:

The draft Ruling also highlights that if you were to cease your income-earning activity whilst you were completing a course, only expenses incurred up to the point when the activity ceases are deductible.

Exclusions

Another key focus of the draft Ruling is the following exclusions that will not be incurred in gaining or producing assessable income:

Exclusion 1
 Self-education expenses cannot be deducted if that are undertaken or designed to: Get employment, obtain new employment, or to open up a new income-earning activity.
Exclusion 2
 Expenses incurred whilst you are not undertaking income-earning activities to produce assessable income.

In addition to examples relation to each principle and exclusion, the Commissioner provides examples of self-education expenses relating to the following:

Apportionment

The Commissioner says that if an expense is not entirely incurred in gaining or producing your assessable income, it may be apportioned in certain circumstances.

Expenses can be apportioned in the following ways:

FBT

From an FBT perspective understanding the “otherwise deductible” rule is of paramount importance. This rule stipulates that if an employee would have been eligible to claim a deduction for self-education expenses had they paid for them out-of-pocket, the taxable value of the fringe benefit that the employer provides can be reduced accordingly. However, to ensure that the otherwise deductible reduction is obtained, an employer should:

This is particularly relevant in light of the newly released draft Taxation Ruling TR 2023/D1, which provides updated guidelines on what qualifies as a deductible self-education expense.

Employers should closely review these new guidelines to ensure that the benefits they offer align with the ruling’s principles. By doing so, they can optimise their FBT liability while also ensuring compliance with income tax laws. This dual compliance not only mitigates the risk of potential penalties but also enhances the employer’s ability to provide meaningful benefits that support employees’ professional development.

How SW can help

The ATO is currently seeking comments on the new draft legislation, with the comments period closing on 27 October 2023.

Once TR 2023/D1 is finalised by the ATO, it is important to note that the ruling will apply both prospectively and retrospectively.

Please reach out to your usual SW advisor or one of our experts for more information about deductibility of self-education expenses or what the draft Tax Ruling might mean for you.

Contributors

Rahul Sanghani

Blake Trad

As part of the State Taxes Acts and Other Acts Amendment Bill that has been introduced to Parliament, the Allan government is set to expand the Vacant Residential Land Tax (VRLT) from 1 January 2025 to apply statewide. Currently, the VRLT applies to only inner and middle suburbs of Melbourne.

VRLT will continue to be payable at 1% of capital improved value of residential property that has been vacant for at least 6 months in a calendar year. The change will take effect from 1 January 2025, effectively capturing land which is vacant for more than 6 months during 2024. VRLT will also expand to apply to residential land that remains undeveloped for five years or more from 1 January 2026.

The existing exemptions for holiday homes and properties being renovated will remain in place. Developers that currently hold vacant land will receive a two-year extension, if they have received a building permit in the initial five-year period in which the land is vacant.

The State Revenue Office (SRO) will have the power to extend the five-year period in certain circumstances that are beyond the control of the developer.  The SRO will also have considerable discretion to determine exemptions.

Underlying reasons for the changes

These changes come as part of the government’s push to meet its target to build 80,000 extra homes per year.

The changes look to put pressure on Victorian owners of vacant homes and land to make the homes available for rent or sale and develop vacant land. This much was confirmed in Treasurer Tim Pallas’ speech to the Property Council in which he stated that the “clear message to landowners is to either develop land or sell it to someone who will”.

Impacts

The impacts of the current and new measures are outlined as follows:

CurrentNew
Homes capturedApproximately 900 homes captured under the VLRT.An additional 700 homes to be captured in the state-wide expansion.
Undeveloped properties Approximately 3000 to be captured in the expansion

In focus

Statewide expansion from 1 January 2024

Undeveloped land from 1 January 2025

The VRLT will apply to vacant residential land that has been vacant for 5 years or more if the land is:

This 5-year period will apply in instances where the land has had the same ownership during the 5 year period.

Land is under development for a non-residential use if:

(a) an application is made for a permit 10 under the Planning and Environment Act 1987 in relation to the use or development of the land for a non-residential use; or

(b) a request is made under the Planning and Environment Act 1987 for an amendment to a planning scheme that would authorise a non-residential use of the land; or

(c) an application is made for a permit or 20 approval under the Building Act 1993 in relation to the use or development of the land for a non-residential use.

Exemptions from the VRLT is available for:

Commissioner discretion

Full details are outlined in the Bill which is currently before parliament and the accompanying Explanatory Memorandum.  Debate on the Bill will resume later this month, with it being likely that the Bill moves to the Legislative Council in November.

How SW can help

Reach out to our state taxes experts if you would like to discuss the potential impact of these changes on your current or future property or land holdings. The SW team can also assist with applying to the Commissioner for exemptions, where applicable.

Contributors

Robert Parker

Blake Trad

The New South Wales (NSW) Chief Commissioner’s guidelines on stamp duty and property leasing provide essential guidance for calculating the dutiable value of complex lease agreements.  

Understanding these rules is vital for developers, landholders, and businesses involved in leasing property, especially with conditions that require the lessee to undertake construction or improvements. This article aims to explain the guidelines, discuss their impact, and offer actionable insights for clients. 

Introduction 

Stamp duty is a tax levied on particular transactions, such as sales and leases of real estate. While it’s a straightforward affair in most circumstances, complex leases involving non-monetary considerations, like property improvements or long-term conditions, can be complicated.  The NSW Chief Commissioner’s guidelines offer examples and conditions under which dutiable value is calculated differently than one might expect. 

The Impact 

Understanding the guidelines has immediate implications for businesses and developers. Depending on the length and conditions of the lease, dutiable values can differ significantly: 

Long-Term Leases: 

Leases exceeding 50 years may have a dutiable value of nil, thereby avoiding stamp duty. 

Conditional Leases:  

Conditional leases often involve stipulations where the lessee (tenant) must undertake certain actions like construction or significant property improvements either as a condition to the grant of the lease or as a condition of the lease itself.  

If a lease is granted for non-monetary consideration comprising improvements to the property, the full cost of the construction (including builder margins) undertaken or to be undertaken by the developer is taken to be the value of the improvements. This value is determined on entry into the agreement for lease or a lease. 

In the absence of evidence of the valuation of the undertaking, the Chief Commissioner has stated in Circular Practice Note (CPN027) that he is prepared to use the following methodology to calculate the proportion of the value attributable to the improvements:  

Term of Lease % of cost of improvements 
10 years or less 100 
Greater than 10 but not more than 20 years 75 
Greater than 20 but not more than 30 years 50 
Greater than 30 but not more than 50 years 25 
Greater than 50 years nil 
Periodic lease or lease for a term that cannot be ascertained when the lease is made 100 

For instance, in a 15-year lease where the lessee is obligated to make improvements worth $20 million, the dutiable value for calculating stamp duty would be 75% of the improvement costs, which amounts to $15 million. 

Here are some other key points to note for a conditional lease: 

Premium and Prepaid Rent:  

Leases may involve upfront payments, which are often categorised as premiums or prepaid rent. These payments can significantly influence the dutiable value of the lease, and consequently, the amount of stamp duty that may be payable. 

In many instances, upfront payments serve as the total consideration for the lease. As a result, these payments could either inflate the dutiable value or, in some situations, completely negate the requirement for stamp duty, depending on the lease terms and other conditions. 

For example, consider a scenario where XYZ Pty Ltd enters into a 15-year lease for an industrial building with a prepaid rent of $15 million. The lessee has the option to satisfy this prepaid rent either through a cash payment or by undertaking construction improvements with an agreed value of $20 million. In the event of an early termination of the lease for reasons other than the lessee’s default, the lessee would be entitled to a proportionate refund of the prepaid rent. No stamp duty is payable on this lease arrangement, regardless of whether the lessee opts for a cash payment or construction improvements, as both options are considered to be forms of prepaid rent 

Failure to grasp these nuances could result in incorrect stamp duty payments, leading to financial and legal repercussions. 

Other Transactions Triggering Duty 

In addition to standard leases, there are various other transactions that could also attract stamp duty, according to guidelines set out in CPN027. These include: 

Actions Clients Need to Take 

Property leasing can be complicated.  We recommend the following steps: 

How SW can help

Understanding the NSW Chief Commissioner’s guidelines is essential for any party involved in complex property leasing situations. SW experts can provide professional advice to help you keep abreast of these rules, helping to avoid surprises in the future.

Contributor

Rahul Sanghani

Robert Parker

The Australian Taxation Office (ATO) has finalised Taxation Ruling TR 2023/3, an update to the draft ruling TR 2021/D5. This ruling, effective from 1 July 2019, focuses on the deductibility of expenses related to holding so called “vacant” land. Taxpayers considering holding or investing in land need to understand the implications of this ruling.

Summary

Section 26-102 of the Income Tax Assessment Act 1997 denies land holding cost deductions where there is no substantial and permanent structure in use or available for use on the land. Various exceptions apply, including where the land is in use for carrying on a business, or the taxpayer is a company. Ruling TR 2023/3 clarifies the ATO’s view on Section 26-102 and provides examples to illustrate its application.

The main points of this ruling are:

Key Concepts

Structure in use or available for use

Section 26-102 specifies that deductions are permissible only when the land is actively used in income-generating business activities or meets specific criteria, such as having a substantial and permanent structure. A substantial and permanent structure is one that is fixed to the land and has a degree of durability and permanence. Examples of such structures include buildings, sheds, silos, windmills, and solar panels.

Carrying on a business and property developers

Section 26-102 does not apply where the taxpayer is using the land in carrying on a business. The Ruling states that whether activities on the land amount to ‘carrying on a business’ is a question of fact’.  Property developers will generally not be affected by Section 26-102 provided they are carrying on a business.  Land held by a developer for future development would be considered ‘available for use’. 

However, where land is held in an SPV (with no other activities), special consideration should be given to whether the SPV is carrying on a business. 

Relevant Area and multiple titles

The Ruling provides some practical guidance where holding costs relate to:

Where the holding costs relate to only part of the land under a property title then for the purposes of determining if there is a substantial and permanent structure on the land, it is sufficient that such a structure exists somewhere on that part of the land. The structure does not need to take up all of that part of the land or all the land under the property title.

Where the holding costs relate to land held under multiple titles, the Ruling states that it will be sufficient where a substantial and permanent structure exists somewhere on the area of land to which the loss or outgoing relates.

Implications

The deductibility of holding costs becomes more complex for non corporate taxpayers.

Individuals may find their ability to claim deductions for holding costs like property taxes and loan interest limited, depending on the land’s usage. The ruling narrows the scope for claiming these deductions, making the land’s actual usage a pivotal factor.

Companies have a distinct advantage when it comes to deductions for holding vacant land. Corporate tax entities are generally exempt from limitations on claiming deductions for holding costs of vacant land during the income year in which the loss or outgoing is incurred. This exemption provides these companies with greater flexibility in their tax planning strategies, allowing them to optimise their tax position while holding vacant land for business purposes.

When vacant land is held in a SPV the situation becomes complex. If the SPV is not a company (or owned by companies), the SPV must meet specific criteria to be eligible for deductions, such as actively using the land or making it available for use in a business. Failure to meet these criteria could result in the SPV being ineligible to claim deductions for holding costs, which could have significant tax implications.

Example: Holding Land in a Company vs. a Discretionary Trust

The following table compares the situations of holding land in a company versus a discretionary trust:

EntityCriteriaDeductibility
CompanyExempt from limitations on claiming deductions for holding costs of vacant land during the income year in which the loss or outgoing is incurredYes
Discretionary TrustMust meet specific criteria to claim deductions, such as actively using the land or making it available for use in a businessDepends

Actions required

  1. Review Current Holdings: Examine your vacant land holdings to assess how the ruling impacts your ability to claim deductions
  2. Analyse Business Activities of land owners (particularly SPVs): Determine whether you are entitled to rely on the carrying on a business exemption and whether SPVs would qualify
  3. Documentation: Ensure proper documentation is in place to substantiate any claims for deductions
  4. Strategic Planning: Re-evaluate your long-term investment or business strategies in light of this ruling and make necessary adjustments.
How SW can help

Understanding the application of TR 2023/3 is essential for anyone holding or planning to hold vacant land. Keeping abreast of these rules and seeking professional advice can save both time and money, helping to avoid potential pitfalls down the line.  Our expert team is here to support you every step of the way.

Contributor

Rahul Sanghani

The NSW Budget delivers a $3.1 billion housing and planning investment package to address the state’s housing crisis. However, the property sector will also face increased taxes as the Government announced some significant tax changes in the Budget. SW experts has summarised all these changes below.

1. Corporate reconstruction and consolidation exemption concession amended to a 90% concession

The 100% duty exemption currently in place for eligible corporate reconstruction and consolidation transactions will be replaced with a concession requiring only 10% of the duty that would otherwise be payable to be paid.

Under the proposed transitional rules, the rules currently in force (i.e. a 100% exemption) are still expected to apply to:

2. Landholder amendments

a. Landholder acquisition thresholds for private unit trust schemes

The threshold for the acquisition of a significant interest in a private unit trust that is a landholder will be reduced from 50% to 20% for acquisitions in private unit trusts after 1 February 2024 (unless it relates to an acquisition from an agreement or arrangement entered into before 19 September 2023).  

However, the 50% threshold will remain for acquisitions in:

The 90% acquisition threshold for ‘public landholders’ (i.e., certain listed companies, certain listed unit trusts and widely held unit trust schemes) remains unchanged.

b. Landholder acquisition thresholds for wholesale unit trust scheme and proposed wholesale unit trust scheme registration

A separate regime is intended to be introduced for wholesale unit trusts. Under the proposed amendments, the Chief Commissioner may register wholesale unit trust schemes, which is expected to have the effect of preserving the 50% acquisition threshold for these entities.

The Chief Commissioner may register a private unit trust scheme as a wholesale unit trust scheme if satisfied that:

The Chief Commissioner may register the private unit trust scheme as an “imminent wholesale unit trust scheme” if satisfied it will meet the abovementioned criteria within 12 months of the first issue of units to a “qualified investor”.

The Chief Commissioner may also cancel the registration if satisfied of any disqualifying circumstances, such as a failure to comply with a condition of registration. This may result in any historical acquisitions in the unit trust scheme as being assessable.

Acquisitions in a trust are taken to be acquisitions in a registered wholesale unit trust scheme or an imminent wholesale unit trust scheme if:

c. Changes to tracing / linked entity rules

The threshold for tracing property through linked entities of a landholder will also be reduced from 50% to 20%, similar to Victoria and Northern Territory.

The changes to the above landholder duty provisions will apply to acquisitions that are completed on or after 1 February 2024 unless they arose from an agreement or arrangement entered before 19 September 2023.

This change is significant as many more entities will be treated as landholders e.g. a company holding a 25% interest in a landholding company or trust. Transactions involving upstream entities will need to be carefully managed.

3. Increase in fixed and nominal duty amounts

The fixed and nominal duty amounts for various transactions under the Duties Act 1997 (NSW) will be increased. For example, this includes increases in the nominal duty:

These changes will apply to most transactions occurring on or after 1 February 2024, regardless of whether they arise under an arrangement entered into before this date.  The exception being that nominal duty for transfers of land under agreements entered into before 1 February 2024 will remain at $10.  

4. End to the duty exemption for certain zero and low emission vehicles

The exemption from motor vehicle registration duty ceases to be available to zero and low emission vehicles from 1 January 2024.  The transitional provisions allow battery electric vehicles and hydrogen fuel cell electric vehicles purchased (or for which a deposit was paid) before 1 January 2024 but that had not yet been registered by that date to continue to access the exemption.

5. Other minor amendments

How SW can help?

Reach out to our state taxes experts if you would like to discuss further.

Contributors

Robert Parker

Wasi Hussain