18 Jun 2009

Stamp duty changes in New South Wales

by John Loxton

The State Revenue Legislation Further Amendment Bill 2009 (NSW) was tabled in Parliament last night. Once passed it will have a significant impact on secured lending and dealings in units and shares in landowning companies and trusts. Its main features are:

Mortgage duty changes

  • Significant changes have been made to the mortgage duty chapter. These changes are intended to settle the provisions for the next three years to 1 July 2012 when the duty is to be abolished. From 1 July 2009, New South Wales will be the only State which levies mortgage duty.
  • Mortgage duty is to remain at the same rate of 0.4% but is to be calculated on the "amount secured" which is the amount of advances made under an agreement, such as a facility agreement, for which the mortgage is security, regardless of whether the security contains a limit. As a result from 1 July 2009 limits in new securities will have no impact on the stamp duty outcome.
  • Mortgage duty is still to be levied only on the New South Wales proportion of advances, using mortgage package provisions. However the way in which a package is defined has changed, so as to no longer contain a 28 day period. Each time a dutiable advance is made the package is formed for the purposes of calculating duty.
  • Where duty has been paid previously on a mortgage or mortgage package there is to be a credit given for this duty after duty is calculated on the full amount secured. Potentially this will allow the Office of State Revenue to claw back duty it previously missed out on.
  • The transitional provisions confirm that the new provisions apply to:
    • mortgages first executed on or after 1 July 2009 or that first become liable to duty as a mortgage on or after that date; and
    • advances or further advances made on or after 1 July 2009 under a pre-1 July 2009 mortgage.

All such mortgages must have or have had a nexus to New South Wales.

  • The transitional arrangements for limited securities seem to mean that any advance on or after 1 July 2009 which exceeds the limit will trigger duty. This would seem to include rollovers. Banks and borrowers therefore need to be especially careful from 1 July 2009 in relation to limited securities.

New landholder provisions

  • Following in the footsteps of Western Australia, New South Wales has introduced "landholder duty" to replace "landrich duty".
  • The most important change to the rules relating to acquisitions of interests in land-owning entities is that the 60% landrich test will no longer apply.
  • Under the new provisions, all that will be required for landholder duty to become relevant is a "significant acquisition" of an interest in an entity that has New South Wales "landholdings" with an unencumbered value of at least $2 million. This substantially widens the duty net.
  • Also, duty will now be calculated on the unencumbered value of all landholdings and goods in New South Wales directly or indirectly held (through a 50% tracing provision) as at the date of the relevant acquisition. Under the current landrich duty provisions, landrich duty is payable on land and "fixtures", which are considered to be part of the land. The levying of landholder duty on goods will not leave any scope to argue that a particular piece of plant and equipment is not a fixture and therefore should be excluded from the value of land.
  • Relevant to the resource industry is the fact that a profit à prendre (such as a mining lease) will be a landholding.
  • The duty will apply to both private entities (effective 1 July 2009) and also to listed and some public entities (effective 1October 2009).
  • Landholder duty will be triggered upon the acquisition of:
    • a 50% or greater interest in a private trust (an increase from the 20% threshold under the landrich duty provisions);
    • a 50% or greater interest in private companies (this remains the same as under the landrich duty provisions); and
    • a 90% or greater interest in listed and public landholders.
  • Notably, under the new provisions duty on listed and public landholder acquisitions will be calculated on only 10% of the value of NSW land plus goods (whether held directly or indirectly).
  • The concept of a wholesale unit trust has been dropped.
  • The rules relating to quarantining have been changed.

New general anti-avoidance provision

  • A new general anti-avoidance provision targets tax avoidance schemes of an artificial, blatant or contrived nature.
  • The objective purpose of the parties will be examined for their sole or dominant purpose, and purposes relating to taxes in other jurisdictions will be ignored.
  • Liability backdates to the time of the transaction so that potential fines and penalties will become an important consideration. This is expected to cause an increase in the number of transactions referred to the Commissioner for a ruling.
  • An unusual "safe harbour" is provided for a person who can satisfy the Commissioner that he did not know that the scheme was a tax avoidance scheme. There is uncertainty as to how broadly it will be applied.
  • The Chapter commences on 1 July 2009 to apply to any scheme "carried out" on or after that date, "regardless of when it was first entered into or made". It does not apply to any amount of duty where the liability date would have been prior to 1 July 2009, but for the scheme.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.