Clarifying the interpretation of certain provisions of the Duties Act 1997 (NSW) which have either been disputed or taken advantage of (or both) in recent years is the goal of the State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022, which was passed by both houses of the New South Wales Parliament on 11 May 2022.
In his second reading speech tabled in Parliament, Minister for Customer Service and Digital Government, Victor Dominello, outlined how the reforms in this Bill fall into three broad categories:
- amendments to State taxation and grant legislation to enhance revenue integrity, ensure the equity of exemptions and concessions, address anomalies, respond to court decisions, close tax avoidance loopholes and reduce red tape;
- amendments to State debt legislation to enhance Revenue NSW’s role in delivering an end-to-end payment collection and debt recovery capability for the State; and
- amendments to fines legislation to improve customer service and strengthen the enforcement of overdue fines.
It is clear that, at least in terms of State Revenue, the focus has now shifted from containment and relief measures to those aimed at recovery and creating the conditions for sustainable economic growth in a post-pandemic world. In this article, we will focus on the two key amendments to the Duties Act that aim to impose duty on changes in beneficial ownership.
Imposition of duty on changes in beneficial ownership
As it stands, changes in beneficial ownership of dutiable property without an accompanying change in (or agreement to change) legal ownership would not trigger a duty liability. Based on this, as an example, a beneficiary with a 50% interest in a fixed trust holding land in New South Wales can dispose of its interest to the other beneficiary that holds the remaining 50% interest without giving rise to a duty liability. This is because the disposal would not cause a transfer of dutiable property, as the legal title would remain with the trustee throughout.
The Bill proposes to introduce a new type of dutiable transaction in section 8(1)(b) to broadly capture any other transactions that result in a change in the beneficial ownership of dutiable property. In addition, an excluded transaction that results in a change in beneficial ownership of dutiable property is also a dutiable transaction if it forms part of a scheme or arrangement that, in the Chief Commissioner’s opinion, was made with a collateral purpose of reducing the duty otherwise chargeable under Chapter 2 of the Duties Act.
This amendment would align the New South Wales provisions with those in Victoria, and align the duty treatment of these kinds of transactions with the broad intention of the Act – that is, to impose duty on all changes in ownership of property (with some prescribed exceptions and concessions).
Imposition of duty on acknowledgement of trust
In the 2020 case of the Chief Commissioner of State Revenue v Benidorm Pty Ltd, the New South Wales Supreme Court of Appeal upheld the decision of the Supreme Court and confirmed that a document which does not effect a transaction, but merely acknowledges an existing legal position, is not liable to duty under the Duties Act.
Relevantly, the case involved two declarations of trust. In the first deed of trust, Benidorm declared that it would hold title to an apartment in Sydney on trust for Mr Robinson. Some time after the execution of the first deed, Mr Robinson died and by his last will and testament, he appointed Mr Stubbs as his sole executor and beneficiary. In the second deed of trust, Benidorm declared that it would hold title to the same apartment in Sydney on the same terms as the first deed, but now as trustee for Mr Stubbs. The Court of Appeal dismissed the Chief Commissioner’s appeal and held that the second deed did not fall within the Duties Act definition of "declaration of trust" as the focus of the Duties Act is now on transactions rather than instruments (which was the focus under the superseded Stamp Duties Act) and the deed merely acknowledged that which had already occurred upon the grant of probate.
In response to this decision, the Bill proposes to insert a new section 8AA to impose duty on the making of a statement that purports to be a declaration of trust over dutiable property, but merely has the effect of acknowledging that identified property vested, or to be vested, in the person making the statement is already held, or to be held, in trust for a person or purpose mentioned in the statement.
This amendment would impose duty on all declarations of trust over identifiable dutiable property regardless of whether the declaration actually effects a transaction, and ensures that the relevant concessions are only applicable to instances where declarations of trust that supersede another declaration of trust involve the same trusts, the same beneficiaries and the dutiable property.
Refunds of Surcharge Purchaser Duty and Surcharge Land Tax
The Bill proposes that surcharge purchaser duty paid in relation to residential land transfers to Australian corporations is refunded, if following the transfer, the land is wholly or predominantly used for commercial or industrial purposes by the transferee. This is an alternative ground available in addition to the existing grounds for refunds of surcharge purchaser duty.
Similarly, the Bill also proposes an extension to the availability of surcharge land tax refunds under section 5C of the Land Tax Act 1956 (NSW) beyond the refunds available to Australian corporations for the construction and sale of new homes and associated subdivisions for the purpose of constructing and selling new homes.
To be eligible for a refund of surcharge purchaser duty or surcharge land tax, an application for refund must be made within 12 months of the start of the use of the land wholly or predominantly for commercial or industrial purposes (the relevant "entitling event" in this instance), and no later than 10 years following the completion of the transfer of the residential land to the Australian corporation.
The Bill also proposes to allow for a reassessment of liability to pay surcharge purchaser duty and surcharge land tax to take place more than 5 years after the initial assessment of liability.
Surcharge land tax exemption for principal place of residence
Currently, the principal place of residence exemption from surcharge land tax is only available if the person uses and occupies the land for a continuous period of 200 days in a land tax year. The uncertainty surrounding the meaning of the words "use and occupy" led some taxpayers to argue that a close physical connection to the property was not required for the purposes of the exemption. The Bill proposes to clarify that a period where the person is physically absent from Australia does not count towards the 200-day period. Where this period of physical absence is brief, it may be waived by the Chief Commissioner, but only in exceptional circumstances.