In brief

The NSW State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 ("Bill") passed NSW Parliament on 11 May 2022. The Bill is awaiting Royal Assent and proposes to introduce significant new measures to the Duties Act 1997 and Taxation Administration Act 1996. These include:

• Charging duty on transactions that result in a change in the beneficial ownership of dutiable property such as land in NSW.

• Charging duty on the making of a statement that 'purports to be a declaration of trust but merely acknowledges that identified property is already held, or to be held, in trust'.

• Enabling refunds of surcharge purchaser duty payable by certain foreign persons if the transferee uses the land, wholly or predominantly, for commercial or industrial purposes.

• Introducing new general anti-avoidance provisions, penalties to deter promotion of tax avoidance schemes and new penalty tax provisions.

A comprehensive 'Legislative Amendment Bill 2022 Technical Guide' will be available on the Revenue NSW website once the Bill receives assent.

In depth

Changes in beneficial ownership

The Bill proposes to insert a 'catch-all' provision whereby duty will arise on a transaction that results in a change in beneficial ownership of dutiable property, other than an 'excluded transaction'. An 'excluded transaction' that results in a change in beneficial ownership will still be dutiable 'if it is part of a scheme or arrangement that, in the Chief Commissioner's opinion, was made with a collateral purpose of reducing the duty otherwise chargeable'. Notably:

• The new provisions target 'dutiable property' and not just land or an interest in land.

• 'Beneficial ownership' will be defined to include 'ownership of dutiable property by a person as trustee of a trust'.

• 'Change in beneficial ownership' will be defined to not only include dutiable property becoming or ceasing to be the subject of a trust but also include a creation or extinguishment of dutiable property.

Given the current definition of 'dutiable property', the new provisions would arguably bring into duty a broader range of transactions which are not dutiable under current law, for instance, a grant of an option to purchase land or creation of a partnership interest that has partnership property that is dutiable property, for example on the admission of a new partner. Only certain transactions will be specifically excluded such as a grant of a lease or easement for no consideration or another 'of a kind prescribed by the regulations'.

The position of commercial leases is at this stage unclear even where the only consideration provided is periodic market rent.Such leases are currently not subject to duty.

It is expected that when regulations are made, whether options and leases are brought to duty will be clearer.

Declaration of trust

The Explanatory Note to the Bill states that this amendment taxing relevant "acknowledgements" of trust is response to the decision of the Court of Appeal in Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285. It was held in Benidorm that a document which does not effect a transaction, but merely acknowledges an existing legal position, is not liable to duty under the Duties Act. Accordingly, the proposed provisions attempt to overcome this decision by charging duty on:

• that 'purports to be a declaration of trust over dutiable property'; but

• 'merely has the effect of acknowledging that identified property vested, or to be vested, in the person making the statement is already held, or to be held, in trust for a person or purpose mentioned in the statement'.

In this instance, the subject property is taken to be property transferred, the person making the statement is taken to be the transferee and the transfer is taken to occur when the statement is made.

The provisions appear to have wide application, subject to pending commentary on the matter from Revenue NSW.

In the absence of sensible limits on the application of the new head of duty, its impact could be far reaching. It would indeed be capricious if the provision could, for example, bring to duty statements made by trustees in routine documents such as resolutions, minutes, correspondence and reports to regulatory authorities or security holders, simply by reason of the fact that the relevant document refers to a trust and identifies trust property.

What mischief is sought to be prevented by taxing such acknowledgements of trust in the absence of a transaction is not clear. This is particularly the case in the context of the Duties Act applying as it does to transactions rather than instruments as in the case of the former Stamp Duties Act 1920 (NSW). The effect of such a provision may be to bring to duty numerous acknowledgements of trust, for example in an instrument amending an existing trust deed, where no change of ownership of the dutiable property or other transaction of substance has occurred.

In circumstances where at the same time as the introduction of the new head of duty, a new category of dutiable transaction was created, namely a change of beneficial ownership of dutiable property (see above), the necessity for the new head of duty remains questionable.

Surcharge purchaser duty – refunds and relief

Surcharge purchaser duty at a rate of 8% (in addition to the general rate of transfer duty) is payable on dutiable transactions relating to acquisitions and certain dealings in residential-related property by a foreign person. Currently, refunds of surcharge purchaser duty are available in specific circumstances. For instance, if the transferee of the residential-related property is an Australian corporation who has constructed a new home on the land or subdivided the land for the purpose of its use for new home construction and the Australian corporation has sold the new home to a third party or sold the subdivided land.

The proposed amendment gives the Chief Commissioner the power to provide a surcharge refund and relief in respect of land used wholly or predominantly for commercial or industrial purposes. It will operate in a similar way to the existing surcharge relief provisions and the Chief Commissioner has powers to impose certain conditions for any relief granted.

As noted in the Second Reading Speech to the Bill, the foreign owner surcharges 'were not intended to impose additional costs on Australian-based foreign owned companies that want to develop land which, for all intents and purposes, is not residential and is clearly intended for commercial or industrial use'. The Speech refers to the new Western Sydney Aerotroplis as an example of a commercial and industrial redevelopment. This will be a welcome change for property developers who acquired residential related property with the intention of building a commercial development.

Anti-avoidance regime

The Bill proposes to remove the existing Chapter 11A anti-avoidance rules from the Duties Act 1997 and instead, insert a new anti-avoidance regime into the Taxation Administration Act 1996. Effectively this means that the anti-avoidance rules will not only apply to duties but also more broadly to all state taxes (e.g., payroll tax, land tax and gaming tax).

Under the proposed rules:

• A 'tax avoidance scheme' is a 'scheme that a person, whether alone or with others, enters into, makes or carries out for the sole or dominant purpose of enabling a tax liability to be avoided'. Any purpose related to avoiding a liability for foreign tax must be disregarded (i.e., a duty, tax or other impost of under a law of another State, a Territory, the Commonwealth or a jurisdiction outside Australia).

• The object of the new provisions is 'to deter schemes to avoid tax liability'. Notably, a reference to 'avoiding tax' or 'avoiding tax liability' includes a reference to postponing payment of tax and reducing or postponing tax liability.

• If a tax avoidance scheme is found, a person will be liable to pay the amount of tax avoided by the person as a result of the scheme. The liability is taken to arise on the date the amount of tax avoided would have been payable if the scheme had not been entered into. However a person is not liable to pay an amount of tax avoided if the Chief Commissioner is satisfied that the person did not know and could not reasonably be expected to have known that the scheme was a tax avoidance scheme (i.e., an 'innocent participant').

Promoter penalties

The Bill proposes to introduce penalties to deter the promotion of tax avoidance schemes. The new division targets conduct that results in a person being a 'promoter' of a tax avoidance scheme. A 'promoter' is defined to be a person who 'markets the scheme or otherwise encourages the growth of the scheme or interest in it'. However it will not include a person who 'provides advice about the scheme or distributes information or material about the scheme prepared by another person'.

If found to be a promoter of a tax avoidance scheme, the penalties can include monetary penalties, Supreme Court injunctions or enforceable voluntary undertakings.

The Explanatory Note to the Bill explains that the new provisions are modelled on the equivalent promoter penalty regime in the Taxation Administration Act 1953 (Cth). However there are notable differences, including the requirements in the Commonwealth promoter penalties regime for the entity or associate to receive (directly or indirectly) consideration in respect of the marketing or encouragement of the scheme.

Given the breadth of the meaning of 'scheme', it is not clear whether a person (e.g., a tax advisor) who provides advice about the scheme (including any economic advantages or disadvantages regarding the scheme) would be targeted by the new provisions. In this regard, it was noted in the Second Reading Speech to the Bill: 'Like the Federal laws, the New South Wales provisions have safeguards to protect those who are not wilfully promoting tax avoidance schemes, including —

• tax advisors when they provide independent and objective advice,

• where the prohibited conduct occurred as a result of something beyond the entity's control.'

Penalty taxes

Penalty tax arises when a tax default occurs. The rate of penalty tax can be between 15% and 90% of the tax default, depending on whether the taxpayer took reasonable care and whether there was any intentional disregard of the law. Currently, the penalty tax rates apply irrespective of whether the taxpayer is an individual, small business or large corporation. The proposed amendments aim to reform the penalty tax system to operate similarly to the penalty tax regime set by the Australian Taxation Office which take into account the nature of the taxpayer. The changes include:

• Increasing the base penalty rate to 50% for 'significant global entities' as defined by the Income Tax Assessment Act 1997 (Cth) i.e., large multinational entities whose global income is AUD 1 billion or more; and

• Empowering the Chief Commissioner to provide penalty relief for genuinely inadvertent errors made by individuals or small businesses in accordance with guidelines published by the Chief Commissioner.


The Bill proposes to include very significant new measures into the Duties Act 1997 and Taxation Administration Act 1996.

However with new measures, several of which are yet to be qualified by regulations and other guidelines to be published by the Chief Commissioner, there comes considerable uncertainty in their application. For this reason, amendments to the Bill were proposed by the Opposition, which provide that the amendments enacted by the Bill must undergo a 24-month statutory review to ensure that the policy and legislative intentions are observed. This is particularly so in relation to the change in beneficial ownership, declaration of trust measures and tax avoidance regime.

In the meantime, caution must be taken in respect of any planning of transactions and careful consideration given to drafting of commercial documents.