NSW Budget 2023-24: Major changes to the NSW duty
03/10/2023
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:
- transactions occurring before 1 February 2024, or
- a transaction occurring on or after 1 February 2024 if an application for the exemption is made on or before 1 April 2024 and the transaction arose from an agreement or arrangement entered into before 19 September 2023.
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:
- private companies
- unit trust schemes which are registered with Revenue NSW as a wholesale unit trust or imminent wholesale unit trust. These are a new category of unit trust (see below).
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:
- it was not established for a particular investor
- at least 80% of its units are held by ‘qualified investors’ (including listed companies and trusts, public superannuation funds and other wholesale unit trust schemes)
- no qualified investor (alone or in aggregate with associated persons) holds 50% or more of its units
- any other requirements specified by the Chief Commissioner to be published in a gazette (not yet published). Note, the Victorian registration requirements are not similarly open ended.
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:
- the acquisition occurs on or after 1 February 2024, and
- an application is made to register the scheme before 1 May 2024, and is subsequently approved.
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:
- on a declaration of trust over unidentified property signed in NSW (or electronically by a trustee based in NSW) from $500 to $750
- on transfers occurring in conformity with an agreement upon which duty has been paid, from $10 to $20
- on certain concessions, including change of trustee concession from $50 to $100, or certain managed investment scheme concessions from $50 to $500.
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
- revise the land tax indexation formula to ensure that the NSW Valuer General can determine the correct land tax threshold for the 2024 land tax year
- require that a person occupying a property as their principal place of residence must own at least a 25 per cent interest in the property to be eligible for the land tax exemption. The transitional provision provides that those who already claim the principal place of residence exemption but own less than 25% may continue to claim the exemption for the 2024 and 2025 land tax years. The minimum ownership requirement will then apply to those owners from the 2026 land tax year
- re-enact a power of the Chief Commissioner to remit interest and include a new power for the Chief Commissioner to issue guidelines about how interest must be remitted.
How SW can help?
Reach out to our state taxes experts if you would like to discuss further.
