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[1].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

Penalty Tax

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.

Contributors

Robert Parker

Carmelin De Francesco

Mitchell Kenny

[1]Chief Commissioner of State Revenue v Benidorm Pty Ltd (2020) 101 NSWLR 729.

The post NSW significantly expands stamp duty regime appeared first on SW Accountants & Advisors.

Following a similar scheme provided in 2020, the current program provides a reduction in land tax payable for the 2021 land tax year for eligible landowners providing rent relief to tenants between 1 July 2021 and 31 December 2021. Applications will be open until 31 January 2022.

Residential landlords have the option of choosing between the land tax relief or the Residential Tenancy Support Payment of up to $1,500 per tenancy agreement if they agree to reduce rent for COVID-19 impacted tenants from 14 July 2021 to 31 December 2021. If the residential landlord has claimed the Residential Tenancy Support Payment they will be ineligible for land tax relief.

How is land tax relief calculated and provided?

• The land tax reduction will be the lesser of:
  • The amount of rent reduction provided to an eligible tenant for any period between 1 July 2021 and 31 December 2021, or
  • 100% of the 2021 land tax attributable[1] to the parcel of land leased to that tenant.
• If eligible, the land tax relief will be available in the form of:
  • A refund if 2021 land tax has already been paid in full, or
  • An offset for the amount of land tax payable if the payment has not been completed.

Landlord eligibility requirements

• Must be leasing a parcel of land to:Must have reduced the rent of the affected tenant for any period between 1 July 2021 and 31 December 2021.
  • A commercial tenant who has an annual turnover of up to $50 million and is eligible for the Micro-business COVID-19 Support Grant, the 2021 NSW Business Grant and/or the JobSaver scheme, or
  • A residential tenant who has had a reduction in household income of 25% or more due to COVID-19.
• Must have provided the rent reduction without any requirement for it to be paid back at a later date.
• Must have land tax attributable to the parcel of land leased to that tenant for 2021.

Key evidence required

For all landlords

• Details of all eligible tenants, including ABN/ACN for commercial tenants.
• Confirmation of total rent reduced or waived for the 1 July 2021 to 31 December 2021 period. Examples include:
  • Copies of tenancy agreements proving rental reduction
  • Rental ledgers
  • A letter from an accountant or property manager
  • Tenant’s financial statements

For commercial tenants

• Documentation demonstrating an annual turnover of less than $50 million in the 2021 financial year in the form of a letter from an accountant, tax return, business activity statement, or other financial statements.
• Evidence of the tenants’ eligibility to be approved for the Micro-business COVID-19 Support Grant, 2021 COVID-19 NSW Business Grant, and/or the JobSaver scheme.

For residential tenants

• Documentation demonstrating a 25% reduction in household income in the form of
  • a statement from the tenants explaining how they have been impacted by COVID-19
  • copies of written communication with the tenants
  • a letter from an employer or accountant, bank statements, payslips, or other financial statements.

How we can help

Our teams can assist both commercial and residential landlords of all sizes to review evidence documentation, financials, and provide accountant letters to ensure your application is successful. Reach out to one of our experts for a conversation about your circumstances.

Get in touch

Leo Luan

E lluan@sw-au.com

Tony Principe

E tprincipe@sw-au.com

Blake Rodgers

E brodgers@sw-au.com

Dilushi Wijesinghe

E dwjesinghe@sw-au.com

The post NSW COVID-19 land tax relief appeared first on SW Accountants & Advisors.