On 19 September 2023, the NSW Government announced a number of changes to the Duties Act 1997 and Land Tax Management Act 1956 as part of its 23/24 Budget.
The changes predominantly affect restructures of corporate entities and private unit trusts and are expected to deliver to the Budget $958.5 million over four years. We explain the changes below.
Chapter 11 of the Duties Act 1997 currently allows a full duty exemption if an entity is seeking to undertake a corporate restructure or corporate consolidation transaction.
This exemption will be replaced with a concession that will require 10 per cent of the duty that would have otherwise been payable to be paid.
The concession will apply to transactions that occur on or after 1 February 2024. The transitional provisions provide an exception for transactions arising from an agreement or arrangement entered before the amending legislation was introduced to Parliament and for which an exemption application is lodged on or before 1 April 2024 and is approved.
This is a case of NSW following Victoria’s lead. Based on the Victorian experience, the shift from the exemption to the concession adds not just to the duty charge but also to the time required to obtain the duty relief and the costs of doing so due to the need for additional veracity around aspects such as valuations not otherwise required for intragroup restructures.
Landholder duty is charged on acquisitions of a significant interest (being 50 per cent or more) in private companies and unit trusts that directly or indirectly hold NSW land with an unencumbered value of $2 million or more.
The NSW Government will amend the threshold of what constitutes a “significant interest” in a private unit trust, reducing the threshold from 50 per cent to 20 per cent.
The 50 per cent threshold will be retained for acquisitions in wholesale unit trusts or imminent wholesale unit trusts. The 50 per cent acquisition threshold for private companies and the 90 per cent threshold for public landholders remain unchanged.
The threshold for the tracing of property through ‘linked entities’ of a landholder will also be amended from 50 per cent to 20 per cent.
The changes to the landholder duty provisions will apply to acquisitions that are completed on or after 1 February 2024, unless they arose from an agreement or arrangement entered before the amending legislation was introduced to Parliament.
Landholder duty has been the subject of several recent court decisions across a number of states and is currently a compliance focus for revenue authorities. To that end, it is important to be aware that the courts have held (contrary to current public guidance) that acquisitions of interests by unrelated entities can be aggregated for the purpose of reaching that percentage threshold in some circumstances, but likewise there are changes that can be made that impact how interests are held and not underlying interests which are not of concern. This is definitely an area to be seeking expert advice presently.
Land is currently exempt from land tax where only one of multiple owners occupies the property as a principal place of residence even in cases where they own only a tiny proportion of the property.
This exemption will only be available to a person occupying the property as their principal place of residence who owns an interest of at least 25 per cent in the property.
The transitional provision provides that those who already claim the principal place of residence exemption from land tax but own less than a 25 per cent interest in the land may continue to claim the exemption for the 2024 and 2025 land tax years. The minimum 25 per cent ownership requirement will then apply to those owners from the 2026 land tax year.
A common misconception is that the principal place of residence for land tax is the same as the main residence for capital gains tax. It is not – don’t get caught out.
Fixed or nominal duty is currently charged in respect of various transactions throughout the Duties Act 1997.
These amounts are set to increase from 1 February 2024, duty of:
If you have any questions about the above changes, please get in touch with our team below.
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.