This new concession is set to last for 12 months and attempts to address ongoing challenges in the Victorian property market, particularly amid high construction costs and interest rates which impact both supply and demand of residential properties. 

How does it work?

The concession allows purchasers to deduct construction costs incurred after the contract date from the dutiable value of their property, potentially reducing the stamp duty owed. Unlike the existing concessions, this one will be open to all purchasers, including investors, companies, and trusts—not just first-home buyers or owner-occupiers. The concession is available only for contracts entered into between 21 October 2024 for 12 months ending 21 October 2025.  

Who benefits? 

• Investors: With the concession extending to investors, who can acquire the property as individuals or via companies and trusts, it could attract more property investments.  

• Developers: This could incentivise more off-the-plan projects by helping drive pre-sales, which are critical for securing project financing. The reduced stamp duty may make such developments more appealing to a broader buyer base, providing developers with the upfront sales needed to get projects off the ground. 

• Buyers: This will offer significant savings for buyers in strata developments, addressing affordability issues as housing demand continues to outstrip supply. 

Potential challenges: 

• Limited scope: The concession only applies to strata subdivisions. House-and-land packages and other property types are excluded. 

• Foreign purchasers: While foreign buyers benefit from the concession, they will still face the additional Foreign Purchaser Additional Duty (FPAD) which could temper the overall savings for them. 

• Limited project pipeline: With ongoing challenges such as rising construction costs and town planning delays, there are relatively few projects ready to be released to the market over the next 12 months. This may lead to developers rushing incomplete or financially unviable projects to market just to take advantage of the concession. The risk? Some of these projects may never get off the ground, potentially causing complications for purchasers. 

Overall, while this temporary concession is a positive step towards stimulating residential property development and easing affordability concerns in Victoria it may not provide enough time to drive substantial change in the property market. The property cycle takes several years to recover to market peak. In Victoria, previous off-the-plan concessions lasted from 2008 to 2017 and gave the market a nine-year window to benefit. That extended timeframe allowed developers and buyers to adapt and maximise the opportunities. In comparison, this shorter concession period might not allow for the same level of market stimulation, limiting its overall impact on increasing housing supply and improving affordability.  

How SW can help 

At SW, our property and stamp duty experts can provide the off-the-plan duty concession analysis and advice to help clients identify the most suitable concession method for their project to achieve the optimal duty outcome for their buyers.   

We can also prepare reports and forecasts taking into account the impact of the concession to assist clients in negotiating better terms with banks and financiers.   

Please contact us if you have any questions in relation to the above.  

Contributors 

Blake Rodgers 

William Zhang  

The post New temporary off-the-plan duty concession appeared first on SW Accountants & Advisors.

The Commercial and Industrial Property Tax Reform Bill 2024 was introduced into the Victorian Legislative Assembly on Wednesday 20 March. This follows the Victorian Government announcement of the final design details of the Commercial and Industrial Property Tax Reform in December 2023. The Government has asked for written submissions or suggested adjustments to the legislation by 3 April.

The CIPT will be an annual property tax with the Bill providing for the transition of qualifying land to the commercial and industrial property tax (CIPT) scheme.

CIPT key points

• The first purchase of a 50% or more interest in a property (directly or indirectly) after 1 July 2024 will be liable to stamp duty (either upfront or via a Government facilitated transitional loan over 10 years).
• Certain subsequent transactions will not be subject to duty under the Duties Act as long as the property remains qualifying land.
• The land will become subject to an annual CIPT after the expiration of 10 years from the land entering into the scheme. The rate of CIPT will be 1% of the site value of the land or 0.5% of the value of BTR land for qualifying build to rent schemes.
• Interestingly, the first purchaser of a 50% or more interest in a property after 1 July 2024 will be subject to both duty and the VCIP after 10 years (so effectively they will suffer double tax).
• The CIPT will not apply to transactions that occur pursuant to an agreement or arrangement entered into prior to 1 July 2024.

What type of properties and land will this apply to?

The reform will apply to Victorian qualifying commercial or industrial use land that fall within the below ranges of the Australian Valuation Property Classification codes (AVCC):

• 200–499, which relate to commercial, industrial and extractive industry uses
•  600–699, which relate to infrastructure and utilities uses or
• the land has been allocated more than one AVPCC in the latest valuation not all of which are in the above ranges, and the land is used solely or primarily for a use described in an AVPCC in the above ranges. Therefore, mixed use properties will be subject to the CIPT where the sole or primary use of the property is one of the above.

Student accommodation

Land will have a qualifying use if the land is solely or primarily used for eligible student accommodation which is defined to mean residential premises that are:

• designed for occupation by students of a higher education provider (higher education provider is defined later in this clause) and
• occupied or available for occupation by students of a higher education provider; and
• commercial residential premises within the meaning of section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999.

Entry into the Scheme

Land with a qualifying use enters the scheme on the occurrence of:

• certain dutiable transfers or relevant acquisitions under the Duties Act 2000 in respect of that land and
• certain subdivisions and consolidation involving land already in the scheme.

Generally, a dutiable or landholder transaction brings land into the scheme if the transaction is not fully exempt from land transfer duty or landholder duty, and the transaction relates to an interest in land that amounts to a qualifying interest, being an interest of at least 50% in the land. 

Aggregation

There are aggregation rules that apply in determining if the 50% threshold has been met. Interests acquired with associated persons and acquisition of interests which occur with a 3-year period will be aggerated. Examples are provided in the Bill.

Who pays CIPT?

The owner of taxable land is liable to pay CIPT on the land.

The owner of CIPT taxable land is the same as the owner of the land for the purposes of the Land Tax Act 2005, however, the provisions deeming the holders of beneficial interests in certain trusts to be owners of land for the purposes of imposing land tax surcharges relating to trusts, are not applicable to CIPT.

Rate of CIPT

The rate of CIPT will be:

• for land other than BTR land: 1% of the taxable value of the land
• for BTR land: 0·5% of the taxable value of the land.

The taxable value of CIPT taxable land or part of CIPT taxable land is the same as the taxable value of the land or part under the Land Tax Act 2005. This is usually the site value contained in a valuation of land undertaken by the Valuer-General under the Valuation of Land Act 1960.

Exemptions from transfer and landholder duty on subsequent sales

There will be exemptions from transfer duty and landholder duty for certain transactions in relation to land that has entered the CIPT scheme.

Acquisitions of 100% interest in land

If the tax reform scheme land has entered the CIPT scheme through a transaction involving a 100% interest, no further duty is payable on a subsequent transaction.

Acquisitions of less than 100% interest in land

Where an interest of over 50% is acquired (but less than 100%), a subsequent transaction which relates to a different interest in the land may be subject to duty for a 3 year period or until full duty has been assessed on the interest (whichever occurs sooner).

The Bill includes as an example:

Person A acquires a 50% interest in a landholder under a relevant acquisition which occurs on 1 September 2025. The landholder holds a 100% interest in land. This relevant acquisition amounts to an interest of 50% in the land which is a qualifying interest and the qualifying landholder transaction is an entry transaction. Person B holds the remaining 50% interest in the landholder. On 1 January 2026, Person C acquires a 100% interest in the landholder from Person A and Person B. The value of the land holding of the landholder is to be excluded from the calculation of duty to the extent that the interest acquired by Person C is the same, or substantially the same, as the entry interest for the land (50%). The value of 50% of the land is included for the purposes of assessing duty on the relevant acquisition made by Person C.

Change in use

Where there is a change of use of land to a non-qualifying use (such as a rezoning to a residential use) after an exempt transaction, duty becomes payable on that transaction by the transferee.

Duty is assessed on the previous transaction based on the dutiable value of the land at the time of that transaction, not at the time of the change of use.

The amount of duty is to be reduced by 10% for each calendar year that has elapsed since the date of the transaction that is being assessed for duty. Note this is not necessarily the entry date of the land to the CIPT scheme.

Exclusions from the CIPT

As noted above, only commercial and industrial land (as well as student accommodation) is captured by the CIPT. Properties primarily used for residential, primary production, community services, sport, or heritage and culture purposes will not be captured.

The following transactions will also be excluded and will remain subject to duty regardless of whether the land has entered the CIPT transition:

• grant or transfer of leases
• economic entitlements.

Furthermore, transactions eligible for corporate reconstruction and corporate consolidation exemptions or concessions will not trigger entry into the CIPT regime.

Also as noted above, dutiable transactions and landholder acquisitions which are eligible for an exemption will not result in entry into the CIPT transition.

Our observations

• It is clear that there will be a number of complexities in the transition to the new CIPT regime.
• Some transactions, such as the grant of a dutiable lease or an economic entitlement in relation to land that has entered the tax reform scheme will remain subject to duty.
• Some dutiable transactions will not result in qualifying land becoming tax reform scheme land such as an acquisition of a direct interest in land of less than 50% or a landholder transaction involving an interest of less than 50%. Unless aggregated with other transactions to reach the 50% threshold, the land will not enter the scheme. The overlay between the landholder regime and the CIPT regime is complex and require further consideration by the Government.
• If transacted multiple times, the same minority interest may incur multiple amounts of transfer or landholder duty before the land enters the scheme (e.g. a 20% interest in a landholding unit trust that is transferred multiple times may incur duty each time it is transferred but the land will not enter the scheme even though the total duty payable may be equal to or more than the duty payable on a 50% direct interest).
• The application of the aggregation rules are complex but appear to not apply to aggregate interests acquired directly in land with interests acquired in a landholder that holds that same interest in the land.

How SW can help

This is a significant change in the application of duty to commercial and industrial property. For advice on how this will impact acquisitions in your pipeline or for assistance in modelling the tax payable on proposed acquisitions, reach out to your SW contact or one of the key contacts below.

Key contacts

Robert Parker

The post Victorian Property Tax Reform appeared first on SW Accountants & Advisors.

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:  

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: 

• Valuation Reports: In certain cases, you can provide a professional valuation report to show that the future value of the improvements you have made will be less than the original cost of those improvements. This can help in lowering the stamp duty payable
• Compliance and Documentation: It’s essential to maintain complete documentation of the improvements carried out, including permits, invoices, and reports, to substantiate the dutiable value calculated based on improvement costs
• Implications for Tenants and Landlords: Tenants must be aware that the costs of improvements could impact the dutiable value, while landlords need to consider how these conditions might affect the lessee’s ability to carry out the lease terms. 

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: 

• Early Termination by Lessor: When a lessor terminates a lease early for specific reasons, such as granting a new lease to another lessee or selling the premises, duty may be payable on any consideration for these arrangements
• Legal Fees over $1,000: If a lessee pays or agrees to pay the lessor’s legal fees, which are non-refundable and greater than $1,000, then duty may be applicable. However, this does not apply to the extension or renewal of a lease where legal fees are paid as rent
• Option to Lease for a Premium: An option to lease land in NSW for a premium may be dutiable
• Assignment of Lease: The transfer or assignment of an existing lease can also attract stamp duty
• Novation of Agreement: Modifying the parties in an agreement for a lease could trigger stamp duty
• Attornment of Leases: In cases of attornment on the sale of a property, stamp duty may also be applicable. 

Actions Clients Need to Take 

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

• Consult a Tax Advisor: Given the complexities, consulting a tax advisor is paramount for ensuring compliance and financial optimisation
• Conduct Valuation: If property improvements are involved, get a valuation to establish a dutiable value
• Document Thoroughly: Keep thorough records of lease terms, conditions, and any upfront payments or improvements made
• Stay Updated: The Chief Commissioner’s guidelines may evolve. Regularly review any updates to remain in compliance
• Liaise with Legal Teams: Ensure that all legal aspects are squared away, especially in leases involving intricate conditions or non-monetary considerations. 

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 post Grant of an option to lease / grant of lease NSW appeared first on SW Accountants & Advisors.

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.

Contributors

Robert Parker

Wasi Hussain

The post NSW Budget 2023-24: Major changes to the NSW duty appeared first on SW Accountants & Advisors.

First home buyers purchasing properties up to $1.5m as their principal residence will now be able to choose to pay an annual property tax instead of stamp duty. Announced in the 2022/23 NSW State Budget, this proposed reform gives first home buyers a choice of opting out of stamp duty and instead paying an annual property tax.

How does it work?

The property tax will only be payable by first home buyers who choose it. Unlike earlier consultation proposals, the property tax will not automatically apply to subsequent purchasers of a property unless they are a qualifying first home buyer who also elects to pay the property tax.

Existing stamp duty concessions for first home buyers are available for purchases of up to $800,000, and these concessions will continue. [It is not clear at this stage if the election affects any entitlement to the First home Owners Grant. The First Home Buyer Assistance Scheme which provided a full exemption for new homes up to $800,000 and a concession for new homes up to $1m ceased from 31 July 2021.]

Who is eligible?

• you must be an individual (not a company or trust)
• you must be over 18 years old
• you, or at least one person you’re buying with, must be an Australian citizen or permanent resident
• you or your spouse must not have previously owned or co-owned residential property in Australia or received a First Home Buyer Grant or duty concessions.
• the property must be worth less than or equal to $1.5m
• you must move into the property within 12 months of purchase and live in it continuously for at least 6 months

Additionally, the contract of purchase must be entered on or after the scheme commencement date:

• for a contract of purchase on or after 16 January 2023 an eligible purchaser may opt into the property tax and will not be required to pay stamp duty in order to complete their transaction.
• for a contract of purchase between the passage of the legislation and 15 January 2023, an eligible purchaser will be required to pay any applicable stamp duty within the usual required periods and from 16 January 2023, will be able to apply for and receive a refund of that duty.

Stamp duty or annual property tax?

Eligible purchasers can choose between:

• paying the usual amount of stamp duty based on the ‘dutiable value’ of the property (i.e. the value including any improvements) or
• paying an annual property tax based on the unimproved land value of the property.

Property tax rates

The property tax rates for 2022-23 will be:

• $400 plus 0.3% of land value for properties whose owners live in them
• $1,500 plus 1.1% of land value for investment properties.

These tax rates will be indexed each year. Unlike land tax, annual property tax assessments will be issued in respect of financial years and not calendar years.

What about principal residences?

Whilst the property is occupied as a principal residence it is likely to be exempt from land tax. However there was no announcement that the property would be exempt from land tax whilst subject to the annual property tax.

Once it ceases to be the principal residence, it is possible that both the annual property tax (at the 1.1% rate) plus an annual land tax could apply – for instance, where the owner decides to move interstate after 6 months occupation and then rent out the property.

It is assumed that there will be some process to adjust any election if the property Is not occupied for the continuous 6 months and retrospectively assess transfer duty.

For properties that are owned for less than a full financial year, a pro rata adjustment to the annual property tax will be made based on the number of days in the year the property is owned. There will therefore be no need to adjust for the annual property tax on the sale of the property.

Click here for more information about NSW considering signifcantly expanding the stamp duty regime.

How can SW help?

Please reach out to one of our tax and property experts below for assistance navigating the implications and opportunities of the property tax reform.

Contributor

Robert Parker

The post NSW property tax reform appeared first on SW Accountants & Advisors.

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.

A consultation Paper, which proposes to replace the current stamp duty and land tax with a single annual property tax for future property purchases, has been released by the NSW government as part of the 2020-2021 budget announcement.

This proposal expects to achieve $11 billion injection over four years into the economy and may provide potential savings to the NSW residents when buying properties.

It could be seen as the most significant economic reform in recent years to strengthen the state’s economy.

Key takeaways

The changes are proposed as an opt-in scheme, a purchaser will therefore have the option to elect from paying either the stamp duty upfront or the annual property tax;

The calculation of the newly proposed annual property tax is on a different basis to the calculation of stamp duty. Specifically, stamp duty is calculated at rates of up to 5.5% on the market value of land, building and improvements, amongst others, whilst the annual property tax will be calculated based on the unimproved land value alone.

There are also different rates proposed to apply depending on the type of properties being acquired, this can be summarized as following:

Once a purchaser elects to opt-in to the annual property tax, that property is then subject to annual property tax for all future purchasers (i.e. they will not have the option of paying upfront stamp duty). Over time, it would result in more and more properties become subject to the annual property tax.

There are no aggregation provisions like land tax does. As a result, the annual property tax is expected to be a flat rate, which applies to that property alone.

Who is impacted?

The above proposal has now been put through to a public consultation process with an initial submission due date of 15 March 2021. There has been no commitment and indicative timeframe from the NSW government in respect of this proposal as a number of key considerations still need to be addressed.

How can we help?

Reach out to one of our ShineWing Australia experts below to discuss how these changes may present an opportunity for you and your business.

Contacts

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Key Takeaways

• Projected deficit of $16bn (2019-20 deficit $6.9bn). Return to surplus by 2024-25
• $29bn committed to economic support measures (including pre-budget measures) in response to the COVID-19 crisis and recession

• $107.1bn pipeline of infrastructure projects
• $29.3bn in recurrent and capital funding of the health system
• Approximately $1.4bn investment in schools infrastructure
• Additional $700m for digitisation transformation of government services via a $1.6bn Digital Restart Fund
• $500m of digital vouchers for hardest hit sectors (dining, arts and entertainment industries)
• Reform agenda to be undertaken for tax (a possible transition away from transfer duty), Government’s planning system, labour force flexibility and regulatory regimes
• Other measures in support of mental health, extended free pre-school scheme, renewable energy and education were included in the budget.

Significant Tax Measures

• Payroll tax rate is to be cut from 5.45% to 4.85% for a 2-year period, backdated to 1 July 2020. The payroll tax threshold will also be permanently increased from $1 million to $1.2 million
• Small and medium sized businesses that do not pay payroll tax will be provided with $1,500 in digital vouchers to cover the cost of government fees and charges
• Jobs Plus Program for companies who relocate their Head Offices or expand their jobs footprint in NSW (from 15 December 2020 until 30 June 2022) will be entitled to payroll tax relief, up to a 4-year period, for every new job created where a business creates at least 30 new net jobs
• Landlords land tax relief for the 2020 land tax year, of up to 50 per cent of the land tax liability relating to their land leased. This Budget extends this support to provide land tax relief of up to 25 per cent for the 2021 land tax year for landlords of retail tenants. Will be available to landlords who provide rent reductions between 1 January 2021 to 28 March 2021, and to eligible retail tenants experiencing financial distress due to the pandemic.

Opportunities for growth and stability

• The economic reform agenda provides the ideal opportunity to both repeal inefficient taxes such as Stamp Duty as well as cut much of the red tape that tends to stifle economic activity
• Proposed expenditure covers almost every sector with particular focus on construction, education and health as the major beneficiaries of the proposed funding boosts
• The focus on building NSW’s presence on the global stage bodes well for new burgeoning industries, particularly in digital technologies, as well as sectors that were on the incline before the pandemic such as health and education
• While the substantial funding provided in the past via GST, stamp duty and payroll tax has been substantially reduced the Government is contemplating the privatisation route to make up the shortfall.

Did the NSW Budget deliver what you ordered?

It has been an extraordinary year of upheaval as the nation and NSW in particular grapples with the effects of COVID-19 and we recognise that everyone has been impacted in different ways. Reach out to one of our experts below for assistance navigating the implications and opportunities this Budget presents for you, your business and your industry.

The post NSW 2020/21 State Budget appeared first on SW Accountants & Advisors.