NSW significantly expands stamp duty regime
Broad ranging stamp duty amendments currently being considered in NSW include extending duty to change of beneficial ownership transactions, expanding anti-avoidance provisions, increasing penalties for SGEs and introducing promoter penalties.
On 23 March 2022, the State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 (NSW) was introduced into the New South Wales Legislative Assembly. The Bill operates to broaden the existing duty base and anti-avoidance and penalty regime in NSW.
Whilst there is some good news with respect to refunds of foreign purchaser duty and land tax in certain circumstances and broadening duty relief for primary production land transfers between family members, other amendments will increase both the scope and administration of NSW state taxes. These include:
- imposition of duty on transactions which result in a change of beneficial ownership of dutiable property
- imposition of duty on acknowledgment of trusts whereby the statement of acknowledgment of a trust over dutiable property is deemed a declaration of trust over dutiable property
- insertion of a new anti-avoidance regime within the Taxation Administration Act (TAA) applying broadly to all NSW state taxes, including the introduction of promoter penalties
- doubling of the penalty tax payable from 25% to 50% for a tax default by a significant global entity (SGE) as that term is defined by the Income Tax Assessment Act 1997 of the Commonwealth.
Change of Beneficial Ownership
The proposed amendments, which have been modelled on provisions contained within the Duties Act 2000 (Vic), broaden the tax base from transactions that are currently dutiable (i.e. a declaration of trust, transfer or sale) to capture transactions involving a change in beneficial ownership and include:
- the creation of dutiable property
- the extinguishment of dutiable property
- a change in equitable interest in dutiable property
- dutiable property becoming the subject of a trust
- dutiable property ceasing to be the subject of a trust.
The provisions have broad application and may apply to impose duty on:
- transactions involving bare trusts
- changes in beneficial interest in dutiable property held by a nominee
- change of entitlements of beneficiaries of a fixed trust
The person who obtains beneficial ownership, or whose beneficial ownership is increased, will be liable for duty on the dutiable value of the property held.
Certain transactions which are not intended to be captured under these provisions comprise of:
- the purchase, gift, allotment or issue of a unit in a unit trust scheme
- the cancellation, redemption or surrender of a unit in a unit trust scheme
- the grant, renewal or variation of a lease for no consideration
- the grant of an easement or profit a prendre for no consideration
- a change in a trustee’s right of indemnity.
The amended provisions will only apply to transactions that occur after the proposed provisions commence. Furthermore, the provisions will not extend to transactions arising after the commencement date if the transaction occurs in accordance with an agreement or arrangement entered into before the commencement date.
Acknowledgement of Trust
The Bill also proposes charging duty on any statement that:
- purports to be a declaration of trust, but
- merely acknowledges that identified property is already held, or to be held, in trust.
Effectively, this amendment will overcome the decision in Chief Commissioner of State Revenue v Benidorm Pty Ltd.The Court held that a declaration of a trust over dutiable property must have a causal effect on the transaction for duty to arise. Merely acknowledging the existing state of affairs in place was not sufficient.
The provision refers to a statement that purports to be a declaration of trust. Presumably an amendment and / or restatement of trust that declares that it does not amount to a new declaration of trust is not captured. However, trustees should be careful executing documents that contain wording capable of being considered as a declaration of trust.
Foreign surcharge purchaser and land tax surcharge refund
The Bill proposes to introduce a refund for an Australian corporation, where the land acquired is used by the transferee, after the completion of the transfer, wholly or predominantly for commercial or industrial purposes.
Currently the Duties Act and Land Tax Act provide for refunds of surcharge purchaser duty and land tax for an Australian corporation where the land is applied to the construction of new homes or the subdivision of land into lots for new residential homes.
Duty and land tax may be refunded only if an application for the refund is made:
- within 12 months after the start of the use of the land wholly or predominantly for commercial or industrial purposes, and
- no later than 10 years after competition of the transfer of the residential-related property to the Australian corporation.
Intergenerational transfers of primary production land
At present, an exemption from duty on primary production land transfers between family members applies if the transferee is an individual. The amendments extend the exemption to apply to certain transfers to entities including a superannuation fund, a family discretionary trust, a private unit trust scheme or a proprietary limited company.
For the exemption to apply, the family member must be the individual directing the transferee. In addition, if the transferee is a proprietary limited company or a trustee of a discretionary trust or of a private unit trust scheme, the family member must maintain a minimum 25% interest in the transferee for 3 years after the transfer.
Introduction of a new anti-avoidance regime and promoter penalties
The current anti-avoidance provisions, focusing on tax avoidance schemes of an “artificial, blatant or contrived nature” under Chapter 11 of the Duties Act are to be removed. In its place, a new regime will be inserted into the TAA.
The proposed amendment will have broader application as the statement of object of the Chapter no longer refers to ‘artificial, blatant or contrived schemes’. The object is now merely to ‘deter schemes to avoid tax liability’. “Avoid” is broadly defined and can include the postponement of tax.
Additionally, provisions to prohibit the promotion of tax avoidance schemes will also be introduced. This aims to capture persons promoting a tax avoidance scheme if that person “markets the scheme or otherwise encourages the growth of the scheme or interest in it”. A person will not be considered a promoter under the provisions if they are merely:
- providing advice about the scheme; or
- distributing information or material about the scheme prepared by another person
In contravening the provision, a person may be issued with an order by the Supreme Court, upon application by the Chief Commissioner, to pay the State a civil penalty up to:
- 10,090 penalty units or $1,109,900 for individuals
- 50,450 penalty units or $5,549,500 for corporations
The penalty tax rate for significant global entities (SGEs) within the meaning of the Income Tax Assessment Act 1997 is set to double from 25% to 50% for tax defaults.
How can SW help?
SW provides a range of expert services to private individuals and businesses for specialist taxes such as stamp duty. Reach out to our team to explore how we can help your individual circumstances such as:
- advice on the NSW duty implications of proposed transactions
- assist with seeking refunds for foreign purchaser duty or land tax if the land is predominantly used for commercial or industrial purposes
- assist with transfers of primary production land between family structures.
Chief Commissioner of State Revenue v Benidorm Pty Ltd (2020) 101 NSWLR 729.