A bill introduced into the New South Wales Parliament on 22 October 2019 will make important changes to stamp duties in New South Wales. The State Revenue Legislation Further Amendment Bill 2019 (NSW) ("Bill") will make the following key changes:
- the rules for determining when an entity is a "landholder" will be tightened up so that having landholdings in NSW with an unencumbered value of $2,000,000.00 or more will make the entity a landholder (rather than applying the valuation test just to the unimproved land);
- land for the purposes of landholder duty going forward will expressly include anything fixed to the land whether or not a fixture;
- liability for landholder duty will extend to the landholder itself under new provisions imposing joint and several liability on the acquisition of interests in the landholder on both the acquirer and the landholder. These provisions will also place a charge on land for unpaid landholder duty;
- the circumstances in which a discretionary trust will be treated as a foreign trust for the purposes of surcharge purchaser duty are prescribed;
- the provisions imposing duty on deemed assignments of call options will also be tightened up.
Under the current rules applying landholder duty, a landholder will be treated as such if it has landholdings in NSW with an unimproved value of $2,000,000.00 or more. Under amendments set out in the Bill, a new test of value will operate on the basis of "unencumbered value" rather than unimproved value. The new test will be closer aligned with the value test of other jurisdictions.
Under the current provisions, unimproved value can generally be determined on the basis of values kept by the Valuer-General for the purposes of levying land tax, avoiding the need for the taxpayer to obtain a separate valuation. Going forward, the acquirer of a landholder may now need to separately obtain evidence of value based on land value and the value of improvements to determine whether the entity it is acquiring is a landholder.
The change should not affect acquisitions of landholders holding high value land, that is, where the unimproved land value is above $2,000,000.
What does land include?
Under new provisions proposed to be included in the landholder duty provisions, what is land will be extended to include anything fixed to the land whether or not:
- the thing constitutes a fixture at law;
- is owned separately from the land; or
- is notionally severed or considered to be legally separate from the land as a result of the operation of any act or law.
The Commissioner will however have certain discretions to determine that land does not include such a thing if the thing is owned by a person who is not the person who owns the land or an associated person and the thing is not used in connection with the use of the land.
This provision is similar to Section 73 of the Duties Act 2000 (Vic).
The combined effect of the changes to the value threshold described above and the inclusion within the definition of land of anything fixed to land will be that a range of entities who are not landholders under the current rules will now become landholders. This for example may apply in the case of an entity that holds nothing more than a commercial lease on usual terms. Even if the lease has no intrinsic value, where the entity as lessee also owns things fixed to the land whether or not fixtures (such as an office fitout), and the total value of the lease and fixed items crosses the $2,000,000.00 threshold described above, the entity may now be regarded as a landholder.
Joint and several liability
Under a new proposed Section 154, joint and several liability to pay landholder duty is imposed on a person who makes the relevant acquisition as well as the landholder or if the landholder is a unit trust scheme, the trustee of the landholder. In addition, where the relevant acquisition results from an aggregation of interests of a number of persons, each of those persons will continue to remain liable.
The new provisions also allow a person who pays an amount of duty certain rights of contribution from other parties who are jointly and severally liable.
The new Section 154(3) will create a charge on the landholder's landholdings for any liability for landholder duty. That charge may be protected by a caveat.
Landholder duty - transitional matters
The changes to landholder duty apply from the date of assent. However, acquisitions made under agreements or arrangements made before this date may allow the taxpayer to claim the benefit of the current rules.
Under provisions introduced from 21 June 2016, surcharge duties were imposed on certain foreign persons including relevant foreign trustees acquiring residential land in New South Wales. A new Section 104JA sets out provisions as to when the trustee of a discretionary trust is taken to be a foreign trustee.
A trustee will be regarded as a foreign trustee unless the trust prevents a foreign person from being a beneficiary of the trust. This will specifically require that no "potential beneficiary" of the trust is a foreign person. A person is a potential beneficiary of a discretionary trust if the exercise or failure to exercise a discretion can result in any property of the trust being distributed to or applied for the benefit of the person.
A further requirement is that the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary who is a foreign person.
The effect of these changes is that all discretionary family trusts of the usual kind holding residential land in NSW will need to be amended to include provisions covering the matters set out above if the trustee is to stay outside the duties regime applying to foreign persons.
Under transitional rules, trustees of discretionary trusts are generally allowed until 31 December 2019 to amend terms of trusts in order to satisfy the new requirements.
Comparable amendments are made to the Land Tax Act 1956 (NSW) in its application to trustees of a discretionary trust taken to be a foreign person.
The provisions that impose transfer duty on deemed assignments of rights under a call option have been expanded. Under the new provisions, duty will apply to situations where the holder of rights under a call option for valuable consideration relinquishes the right under the call option and the grantor of the option agrees to sell the property to a third person.
These changes will not apply to a relevant agreement or arrangement entered into before commencement of the changes, being the date of assent.
Other changes include:
- provision for approval by the Chief Commissioner of a manner of stamping or endorsement by a single unique transaction identifier or reference number or a single endorsement for both purchaser duty and surcharge purchaser duty;
- changes to community development levies payable by Local Aboriginal Land Councils and the First Homebuyers Assistance scheme.