Significant changes have been made to the Duties Act 1997 (NSW) (Duties Act) under the State Revenue Legislation Further Amendment Act 2009, namely:
- a ‘landholder model’ replaces the existing land rich provisions
- the calculation of mortgage duty changes in a number of material respects, and
- there will be a broadly worded general anti-avoidance provision.
Most of the changes will apply on and from 1 July 2009.
‘Land rich’ duty
The ‘land rich’ provisions charge duty on certain acquisitions of shares and units in companies and unit trust schemes, at the same rate as a transfer of land. Currently, these provisions apply if the entity in which the shares or units are to be acquired:
a.has land holdings in New South Wales with an unencumbered value of $2 million or more, and
b.its landholdings comprise 60 per cent or more of the unencumbered value of all its property.
Under the new landholder regime:
a.A company or unit trust scheme with New South Wales landholdings of $2 million or more will be a landholder. The 60 per cent threshold will be abolished.
b.Landholder duty will be chargeable if a person acquires an interest of 50 per cent or more in a private landholder (an unlisted entity). That is, the threshold for liability to duty for private unit trust schemes will increase from 20 per cent to 50 per cent, and the concept of a wholesale unit trust will be removed.
c.Landholder duty will be chargeable if a person acquires an interest of 90 per cent or more in a public landholder (a listed entity or a widely held trust). For an acquisition in a public landholder, the amount of duty payable is 10 per cent of the duty otherwise payable. The existing land rich provisions do not apply to acquisitions of shares and units quoted on a recognised stock exchange, or to units in a widely held trust.
d.Broad aggregation rules apply to determine whether a person acquires an interest of 50 per cent or more, or 90 per cent or more. Additional rules apply to determine what counts as land and other property of an entity.
e.If landholder duty is payable, the rate of duty is up to 5.5 per cent, calculated by reference to the New South Wales landholdings and goods of the landholder.
The landholder model will apply to an acquisition in an unlisted entity that occurs on and from 1 July 2009 (unless the acquisition occurs pursuant to an agreement entered into or option executed before 11 November 2008, in which case the existing land rich provisions will apply). For an acquisition in a public landholder, the landholder model will apply on and from 1 October 2009, unless the intention to make the acquisition had been announced to the market before 17 June 2009 (in which case the new provisions do not apply to the acquisition).
New South Wales will be the only Australian jurisdiction to impose mortgage duty on and from 1 July 2009.
The amendments to the existing mortgage duty provisions will change how liability to mortgage duty arises and how mortgage duty is calculated. Potentially, all mortgages and charges affecting New South Wales property will be affected by the amendments, including those put in place prior to 1 July 2009.
Under the amended provisions, liability to mortgage duty may arise each time there is a further advance made on or after 1 July 2009. In addition, each time liability to mortgage duty arises, the total duty payable will be recalculated, with a credit available for duty already paid.
A limit on the amount recoverable under a mortgage or charge will no longer be relevant to the calculation of mortgage duty. As a consequence, existing limited securities may become subject to mortgage duty if advances are made in excess of the limit.
A mortgage or charge will be unenforceable to the extent of any amount secured on which duty has not been paid.
General anti–avoidance provision
The New South Wales duties legislation does not currently contain a general anti-avoidance provision. A broadly worded general anti-avoidance provision will be inserted into the Duties Act, with effect on and from 1 July 2009. It is aimed at artificial, blatant or contrived tax avoidance schemes. Liability to duty is deemed to arise when the duty would have been payable but for the scheme (with the consequence that interest and penalty may be payable if the Chief Commissioner issues an assessment on the basis of the provision).
Amendments will be made:
a.to clarify that duty is imposed on a trauma policy, a total and permanent disablement policy and a disability income policy at the rate of five per cent of the premium paid to effect the insurance (with effect from 1 October 2009), and
b.to require an emergency services levy to be treated as part of the premium of an insurance policy for duty purposes (with effect from 1 July 2009).
The new legislation will make numerous other changes to the Duties Act, including the goodwill apportionment provisions which apply in the transfer duty context.
The Act also contains various changes to other legislation, including the Land Tax Management Act 1956, the Payroll Tax Act 2007 and the Taxation Administration Act 1996.