Australia: Significant Stamp Duty Changes In New South Wales

Landholder duty

Currently, land rich duty is imposed at transfer rates of up to 5.5%, where shares or units are acquired in a private company or private unit trust, which has more than 60% of its assets as land in New South Wales with an unencumbered value of $2 million or more.

New thresholds

New landholder provisions will come into effect on 1 July 2009 and remove the 60% land asset threshold to determine whether a company or trust is land rich.

Instead, the threshold test will become whether the company or trust holds land in New South Wales with an unencumbered value of $2 million or more. The duty will also be known as landholder duty rather than land rich duty.

The requirement for the acquisition to be of a significant interest is retained with the same aggregation tests to be applied. There is however now a common acquisition level for both private unit trust schemes and private companies of 50%. The present threshold of 20% for the acquisition of an interest in a private unit trust scheme is raised to the same 50% threshold applied to acquisitions of interests in private companies.

Implications of the changes to the threshold

The new model simplifies some of the complexity of the old provisions by removing the requirement to consider the proportion of land and other assets in determining whether the 60% land value threshold was met. In removing that complexity however, a much larger number of transactions involving acquisition of interests in companies and unit trusts will now be caught by the landholder provisions.

The landholder model has already been adopted in Queensland, Western Australia, the ACT and the Northern Territory.

Clearly, any pretense that this duty is an anti-avoidance measure to protect transfer duty has now gone. This duty is simply a way of attaching transfer duty at higher rates to the acquisition of shares and units on the basis of the underlying land value instead of the 0.6% rate for share transfers. With the proposed future abolition of duty on share transfers, it is also a way of securing the New South Wales revenue base for duty purposes by an alternate means.

Land rich duty to apply to public companies and public unit schemes

Previously, land rich duty only applied to private companies and private unit trust schemes, and not public companies and public unit trust schemes. Under the amendments, landholder duty will be applied to public companies and public unit trust schemes. From 1 October 2009, an interest will be a significant interest in a public landholder (being a public unit trust scheme or a listed company) where the interest acquired is 90% or more.

The duty chargeable on acquisitions of interests in public landholders is to be at a reduced rate of 10% of the duty that would be chargeable on an acquisition of all the land and goods held by the public landholder.

As a result of the widening of the tax net to public landholders, there are also a range of exemptions and concessions.

Application of the duty to primary producers

Acquisitions of interests in companies and unit trusts which are primary producers will be subject to duty if the landholdings comprise 80% or more of the unencumbered value of all the property.

Application of the duty to goods

The duty will be levied by reference to the value of goods of the landholder, as well of the value of its landholdings, once the $2 million land threshold is reached. The exclusions from the definition of goods in the transfer provisions (eg stock in trade, goods under manufacture, motor vehicles etc) are included in the landholder provisions.

Tracing provisions

The tracing provisions that allow landholdings to be traced through linked entities has been revised so that entities can only be linked where a person has an interest of 50% or more in another entity rather than the previous 20%.

Mortgage duty changes

There have been some significant changes to the mortgage duty provisions designed to close avoidance opportunities.

The most significant change is to the definition of amount secured with the distinction between all moneys mortgages and mortgages for a definite and limited sum being removed.

The amount secured by a mortgage will now be the amount of any advances made under an agreement, understanding or arrangement, for which the mortgage is security (even if the amount of advances made exceeds the amount of advances recoverable under the mortgage).

Previously, the amount of duty was calculated solely by reference to the amount secured by the mortgage.

It has been common practice to stamp the mortgage with only a nominal amount of duty based on a definite and limited sum set out in the mortgage itself.

The mortgage has always been unenforceable to the extent of any amount for which the mortgage is security on which duty has not been paid. The new amendments mean, that if the amount in the facility letter or other arrangement or understanding exceeds a definite and limited sum recoverable under the mortgage, duty will be payable on the excess.

To avoid this outcome, it will be essential to ensure the mortgage does not secure any amount advanced under an agreement, understanding or arrangement, in addition to that secured under the mortgage.

The new provisions require additional mortgage duty to be paid where the amount for which the mortgage is security is increased. The additional duty will be the difference between the duty chargeable on the amount secured by the mortgage and the amount of duty for which the mortgage has already been stamped. This replaces the current arrangements, where the amount of further mortgage duty chargeable is calculated by reference to the amount of any advance or further advance.

The new method of assessing mortgage duty will only apply in relation to mortgages executed after 1 July 2009.

Mortgages executed before 1 July 2009, that secure a definite and limited sum, will continue to be assessed under the existing provisions.

There are also new provisions dealing with payment of duty in relation to mortgage packages. All mortgages or other instruments that secure the same monies will be assessed as a mortgage package. There are new concessional arrangements to limit duty on mortgage packages where there is duty chargeable in different jurisdictions. This replaces the current more complex arrangements for giving credit for the payment of duty in other jurisdictions.

Tax avoidance schemes

A new chapter 11A has been inserted in the Duties Act to deter artificial, blatant or contrived schemes to reduce or avoid liability for stamp duty. The avoidance sections are based on Part IVA of the Income Tax Assessment Act (ITAA).

A tax avoidance scheme will be any scheme entered into, made or carried out by a person, whether alone or with others, for the sole or dominant purpose of enabling liability for stamp duty to be avoided or reduced.

The provisions list a number of factors to be considered for the purpose of determining whether a tax avoidance scheme exists. These factors are broadly in line with those listed in Part IVA of the ITAA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.