Two key pieces of legislation to broaden New South Wales' revenue base are now law, so any trustees, landholders, or businesses in the residential home market will need to understand how they are affected and seek tax advice.
The Duties Act 1997 (NSW) and Land Tax Act 1956 (NSW) have been amended by:
- the State Revenue Legislation Amendment Bill 2017, which received royal assent on 11 April 2017 and is now law; and
- the State Revenue and Other Legislation (Budget Measures) Bill 2017, which received royal assent on 27 June 2017 and comes into effect on 1 July 2017.
Amendments to the change in trustee concession
Before: the concession would have applied if the transfer was not to the "detriment" of the beneficial interest or potential beneficial interest of any person.
Now: the trustee concession in section 54 of the Duties Act has been narrowed. The Chief Commissioner now needs to be satisfied that the change of trustee was not part of a scheme to avoid duty that involves conferring an interest in the relevant dutiable property on a new trustee or other person (whether or not as a beneficiary) so as to cause any person to cease holding the whole or any part of a beneficial interest (or potential beneficial interest) in that property.
Changes to the Landholder duty provisions
Before: under section 149 of the Duties Act "a person makes a relevant acquisition in a landholder if the person acquires an interest in a landholder… (iii) that, when aggregated with other interests in the landholder acquired by the person or other persons under acquisitions that form, evidence, give effect to or arise from what is substantially one arrangement between acquirers, results in an aggregation that amounts to a significant interest in the landholder".
The Duties Act did not specify the circumstances in which transactions would be aggregated and treated as being "one arrangement".
Now: the amended section 149 specifies the following circumstances which need to be taken into account in determining whether acquisitions form, evidence, give effect to, or arise from what is substantially one arrangement between the acquirers:
- whether the entry into or completion of the acquisitions are conditional upon each other;
- whether the parties are the same;
- whether any party to an acquisition is an associated person of another party of the other acquisition;
- the timeframe over which the acquisitions take place;
- whether before, or after the acquisitions take place, the interests are, or will be, used together or dependently with one another;
- any other relevant circumstances.
The above factors were previously set out in a now obsolete Revenue Ruling DUT.028 which set out the Chief Commissioner's views on transactions which would have been considered to be "associated transactions". While the words "between acquirers" has been maintained in the amended section 149, it is unclear if listing the factors in the actual legislation is a policy change towards broadening the application of section 149 to transactions that may not have been previously caught under the pre-amendment version of section 149.
Linked entities and constructive ownership of land
Before: an entity was imputed with the land held by its "linked entity", which was an entity in which it was entitled to at least 50% of the property either directly or through a chain of linked entities.
Now: a private company/private unit trust (being the "top entity") can now be deemed to hold land that is held by entities in which the top entity holds less than a 50% interest if:
- those entities are part of a chain of entities; and
- the top entity, through that chain of entities, is entitled to receive not less than 50% of the value of that property.
Liabilities of any entity in the chain of entities are to be disregarded.
Essentially this means that if a top entity directly has a 49% interest in a trust that holds land in New South Wales, and then also holds a further 10% interest in that trust through another wholly owned sub-trust, the top entity would be a landholder. This is because it would be entitled to 50% or more of the property of that trust (now being a linked entity) upon winding up of all the entities in the chain. Prior to the amendments the top entity would not have been a landholder in this example. This is only one instance in which an entity could now be imputed with land held by entities that would previously not have been deemed to be a linked entity.
Before: trustees were associated persons only if there was a common beneficiary of the trusts for which they were trustees. Similarly, a company and trustee were associated persons if a related body corporate of the company was a beneficiary of the trust for which the trustee was a trustee. Public unit trusts were excluded.
Now: the circumstances in which two trustees, a company and a trustee and an individual and a trustee may be associates have been broadened. A company, individual and another trustee can now all be associates of a trustee if there is a connection at a sub-trust level. This will require an examination of the connection between companies, individuals and trusts at head trust and sub-trust levels. Notably a sub-trust is defined as being both a direct and indirect sub-trust and a person is a beneficiary of a sub-trust if it holds an interest of 50% or more in that sub-trust.
Landholdings of a landholder
Before: the landholdings of a private landholder included any land that was transferred to the acquirer or its associate within the 12 month period before the acquisition was made.
Now: landholdings include any land "agreed" to be transferred to the acquirer or its associate within the 12 month period before the acquisition was made.
Put and call options
Before: only the transferor and the transferee under an uncompleted contract for sale were deemed to be separately entitled to the whole of the land.
Now: the grantor of a put option and the grantee of a call option will also be treated as being separately entitled to the whole of the land. Consequently, a transfer of all of the shares in a private company which holds a call option to acquire land in New South Wales (where there is a corresponding put option) will be deemed to hold that land as if the call option had been exercised and the subsequent contract for sale of land had been completed.
Note, this provision would only apply to arrangements involving both put and call options.
General anti-avoidance provisions
Section 284D(2) of the Duties Act has been replaced and now provides that for the purposes of Chapter 11A:
"the amount of duty avoided by a person as a result of the tax avoidance scheme is the amount of duty, or the amount of additional duty, that, if the tax avoidance scheme had not been entered into or made:
- would have been payable by the person, or
- it is reasonable to expect would have been payable by the person, assuming that a reasonable alternative to entering into or making the scheme had been adopted (being an alternative that would have achieved the same economic or commercial result as the scheme, other than the result of avoiding or reducing duty)."
It appears that the amendments to section 284D(2) seek to diminish a taxpayer's ability to choose a more duty-effective structure where there is a less duty efficient alternative available, as not doing so would run the risk of being caught by the general anti-avoidance provisions in Chapter 11A.
As Chapter 11A of the Duties Act is yet to be tested in the courts, it remains unclear as to how the courts would apply the above amendments.
First Home and New Home assistance schemes
Effective 1 July 2017, the First Home Buyers Assistance scheme will replace the First Home New Home Scheme. No duty will be payable by first home buyers on both new and existing homes valued at up to $650,000. The duty will be reduced for homes between $650,000 to $800,000.
From 1 July 2017, the shared equity scheme applies so that a home buyer (who would not otherwise have been able to afford a property) can buy a property with an approved equity partner. The Chief Commissioner will publish guidelines regarding the operation of this scheme. One requirement for the scheme to apply is that the home buyer must not acquire less than a 20% share in the ownership of the property.
The final day for the New Home Grant scheme of $5,000 is 30 June 2017.
From 1 July 2017, first home owners can access a grant of $10,000 for:
- building a new home under a home building contract where the contract price plus the land value is $750,000 or less;
- building of a new home by an owner builder provided that the value of the land and building does not exceed $750,000;
- purchase of a new home valued at no more than $600,000.
Off the plan purchases ‒ deferral of liability
From 1 July 2017, investors will not be able to defer their duty liability by 12 months on purchases of residential land. Only purchasers who declare an intention to occupy the property as their principal place of residence will be entitled to deferral.
Surcharge purchaser duty
From 1 July 2017, the surcharge purchaser duty will increase from 4% to 8%.
From 20 June 2017, persons holding permanent resident visas and New Zealand citizens holding a subclass 444 visa will be exempt from surcharge purchaser duty and surcharge land tax on their principal place of residence, provided they occupy the home for 200 days continuously within 12 months of purchase.
Australian-based developers who acquired land on or after 21 June 2016 could be entitled to a refund of any surcharge purchaser duty and surcharge land tax that they have paid if they are an Australian corporation within the meaning of the Corporations Act 2001. Certain criteria would need to be satisfied for the refund to be available.
Commercial residential property will be exempt from surcharge purchaser duty and surcharge land tax. The Chief Commissioner will publish guidelines on in relation to what qualifies as commercial residential property. From 1 July 2018, commercial residential property will also be exempt from surcharge land tax.
From 1 July 2017, insurance duty will no longer be payable on a lender's mortgage insurance policy in New South Wales.
From 1 July 2018, no insurance duty will be payable on crop and livestock insurance.
From 1 July 2018, small businesses will not have to pay duty on:
- commercial vehicle insurance where the vehicle is used primarily for business;
- commercial aviation insurance for aircraft used primarily for business;
- occupational indemnity insurance; and
- product and public liability insurance.
A small business will have the same meaning as in section 152-10(1AA) of the Income Tax Assessment Act 1997.