State Taxes Update- July 2016

New South Wales State Budget The 2016-17 New South Wales (NSW) Budget was delivered by the NSW Treasurer on 21 June 2016 and includes the following significant taxation changes:  the abolition of stamp duty on unlisted marketable securities, non-land business assets and business mortgages  introducing a 4 per cent duty surcharge on acquisitions of residential land by foreign persons and a 0.75 per cent land tax surcharge on residential land owned by foreign persons, and  increasing the payroll tax rebate for the second year of employment from $3,000 to $4,000 for eligible employment commencing on or after 31 July 2016. Read the Employment Tax Update for more details. The key taxation measures and/or incentives announced in the Budget are as follows. Foreign investor duty surcharge From 21 June 2016, a flat transfer duty surcharge of 4 per cent will apply to all acquisitions of NSW residential real estate by foreign purchasers, including foreign individuals, corporations, trusts and governments. The surcharge will also apply to landholder transactions if the underlying land is residential land and the purchaser of shares or units in the landholder is a foreign person. The meaning of a ‘foreign person’ is taken from the Foreign Investment Review Board (FIRB) definition provided in the Foreign Acquisitions and Takeovers Act 1975 with some modifications. These modifications provide that the definition of a foreign person does not include an Australian citizen (irrespective of where they reside) or a New Zealand citizen who is ordinarily resident in Australia, provided that they hold a special category visa and their continued presence in Australia is not subject to any legal time limitations. The definition of ‘residential land’ is broader than existing definitions in the NSW Duty Act. However, according to announcements made by the Office of State Revenue and the Treasurer, the surcharge will TaxTalk Monthly July 2016 PwC 5 not apply to retirement villages or ‘commercial residential premises’ (for example, hotels, motels, inns, hostels or boarding houses, caravan parks, camping grounds or premises used to provide accommodation in connection with a school). While this is welcome and is a sensible policy outcome, given the expansive definition of ‘residential land’, a specific exclusion in the legislation for these asset classes would be preferred. The surcharge purchaser duty will apply in respect of all transactions that occur on or after 21 June 2016. Transitional provisions will apply so that if an agreement was made prior to 21 June 2016 but completes after 21 June 2016, no surcharge duty will apply. Unlike the Victorian legislation, NSW’s legislation does not appear to provide any exemption for foreign developers and therefore it is expected that the surcharge will apply to foreign developers who acquire land to build and on-sell as residential land. The current concession for residential off-the-plan purchases (which allows for a delay of up to twelve months in the payment of duty) will no longer be available to foreign persons. Foreign investor land tax surcharge Commencing from the 2017 land tax year (i.e. 1 January 2017), a land tax surcharge of 0.75 per cent will apply to holdings of NSW residential land by foreign persons. There will be no tax free-threshold. Accordingly, foreign investors will still be subject to the surcharge on all owned residential land even if the total land value is below the current land tax threshold. In addition, there is no principal place of residence exemption for this surcharge. If the land is owned by a foreign person and non-foreign persons, the surcharge is assessed on the proportion of the interest held by the foreign person. The same definition of a ‘foreign person’ applies to the land tax surcharge provisions (i.e. the definition takes its meaning from FIRB legislation with some modifications for Australian and New Zealand citizens). Likewise, the definition of ‘residential land’ is the same. Accordingly, it is expected that ‘commercial residential premises’ are excluded. Other stamp duty changes The Government had previously announced and legislated the abolition of stamp duty on selected dutiable property. This has been confirmed in the 2016-17 NSW Budget. On and from 1 July 2016, duty will not be imposed on the transfer of:  Unlisted marketable securities  Non-land business assets, and  Business mortgages. Levy on point to point transport services The NSW Government has been progressively introducing reforms to the taxi, hire car and rideshare industry, and has set aside $250 million industry assistance package to assist licence owners to adjust to the new framework. A levy on all point to point transport providers equivalent to $1 per trip for up to five years will be introduced to partly fund this. Presumably, this will be passed on to customers. Other highlights Other highlights announced in the 2016-17 Budget include:  Infrastructure investment of $73.3 billion over the forward estimates. The infrastructure programme is characterised by substantial funding in the transport clusters over 2016-17, specifically: – $2.9 billion allocated to WestConnex (including funding for the Western Harbour Tunnel and Beaches Link) – $1.5 billion allocated to Pacific Highway duplication, and – $2.7 billion allocated to deliver Sydney Metro.  Increased investment in health services ($21 billion), education ($13.3 billion), and community safety ($8.1 billion). For further information, contact Costa Koutsis on +61 (3) 8266 3981 or at [email protected] . Queensland State Budget The 2016-17 Queensland State Budget was delivered by the Queensland Treasurer on 14 June 2016 and includes the following major new initiatives and significant taxation changes:  introduction from 1 October 2016 of a foreign purchaser 3 per cent surcharge to stamp duties payable on residential land. The surcharge will apply to transfer duty (for all types of dutiable transactions), landholder duty and corporate trustee duty (relevant to discretionary trusts) but only to the residential land component of a relevant transaction TaxTalk Monthly July 2016 PwC 6  a temporary increase in the First Home Owners Grant from $15,000 to $20,000 for contracts on newly constructed homes signed between 1 July 2016 and 30 June 2017  an extension of the existing duty concession which applies in respect of primary production (and other prescribed businesses) intergenerational transfers  increased compliance activity targeting entities which inappropriately claim the ‘not-for-profit’ status in respect of State taxes such as land tax, duties and payroll tax. The key taxation measures and/or incentives announced in the Budget are as follows. Foreign purchaser surcharge From 1 October 2016, a 3 per cent surcharge to transfer duty, landholder duty, and corporate trustee duty will be imposed in respect of foreign purchasers of residential land in Queensland. Relevantly, foreign purchasers will include foreign individuals (i.e. natural persons other than Australian citizens or permanent residents), companies incorporated outside Australia, companies controlled by foreign persons, and foreign trusts. The Queensland Treasurer has stated that ex gratia relief may be available to foreign purchasers. Read more in our TaxTalk Alert. This 3 per cent surcharge will be in addition to the general duty rates of up to 5.75 per cent, resulting in relevant transactions being subject to duty at rates of up to 8.75 per cent. General concessions from duty will apply in respect of the foreign purchaser duty surcharge (for example, change in trustee exemption and corporate reconstruction relief). However, certain concessions will not extend to this surcharge such as the concessions for homes and first homes, and family businesses. Importantly, the Budget changes did not apply the foreign purchasers surcharge to land tax. It remains to be seen if this change will subsequently be made to bring Queensland in line with Victoria and NSW. Temporary increase in the First Home Owners’ grant The Queensland First Home Owners’ Grant will be temporarily increased from $15,000 to $20,000 for contracts on newly constructed homes signed between 1 July 2016 and 30 June 2017. Relevantly, the Queensland First Home Owners’ Grant is available for first home buyers who are buying or building a new house, unit or townhouse valued at less than $750,000. It does not apply to existing dwellings. Rural Assistance Package – transfer duty concession The Government is extending the family farm transfer duty concession for the familial transfer of farm businesses. It has been estimated that the concession will cost $7 million over the four years to 2019-20. The existing concession applies to transfers (and indirect acquisitions through family partnerships, family trusts and family unit trusts) of land primarily used to carry on a business of primary production (including adjacent residential land), as well as personal property used to conduct the business on the land, to the extent the transfer is by way of gift. The concession will be extended by removing the gift requirement. For further information contact Stefan DeBellis on +61 (7) 3257 8781 or at [email protected] Australian Capital Territory (ACT) Budget The 2016-17 ACT Budget was delivered by the ACT Chief Minister and Treasurer on 7 June 2016. The Budget includes measures to continue tax reforms that commenced in previous Budgets as well as several new measures, including:  abolishing the insurance duty from 1 July 2016  increasing the payroll tax free threshold to $2 million in 2016-17  continued reduction in conveyance duty rates including: – from 2017-18, commercial and residential property transactions will have separate conveyance duty rates and duty for commercial property transactions below $1.5 million will be phased out over two years – a flat rate of 5 per cent will apply to commercial property transactions over $1.5 million – residential conveyance duty rates will continue to reduce every year through incremental reductions to the marginal rates.  reducing the early payment discount for general rates to 2 per cent from 1 July 2016 and reducing the size of previously announced increases in general rates, and TaxTalk Monthly July 2016 PwC 7  increasing the fixed charge component of land tax by $100 in 2016-17. A summary of the significant tax reform measures announced in the Budget are as follows. Abolition of duty on insurance from 1 July 2016 In the 2012-13 Budget, the Government announced the abolishment of duty on insurance premiums over a five year period. From 1 July 2016, duty on general and life insurance will be completely abolished in the ACT. Phasing out of conveyance duty over 20 years (commenced 6 June 2012) Continuing with the scheduled phasing out of conveyance duty over 20 years, the Treasurer has announced it will further reduce conveyance duty rates in 2016-17 and over the next few years (for both residential and commercial). The table below shows the ‘commercial’ conveyance duty rate scales for 2016-17 and the next two years (note that separate duty rates will apply to ‘residential’ conveyances from 2017-18). Conveyance duty for commercial property transactions below $1.5 million will be phased out over two years so that by 2018-19, a flat rate of 5 per cent will apply to the entire value of commercial property transactions over $1.5 million, and conveyance duty for commercial property transactions below $1.5 million will be fully abolished. Threshold 2015-16 2016-17 2017-18 2018-19 % % % % Up to $200,000 1.8 1.48 0.7 0 $200,001 to $300,000 3 2.5 1.2 0 $300,001 to $500,000 4 4 1.9 0 $500,001 to $750,000 5 5 2.39 0 $750,001 to $1,000,000 6.5 6.5 3.15 0 $1,000,001 to $1,454,999 (*$1,499,999 from 2017-19) 7 7 3.4 0 $1,455,000 (*$1,500,000 from 2017-19) and above** 5.17 5.09 5 5 *From 2017-18 the highest threshold for commercial conveyance duty will increase from $1,455,000 to $1,500,000. General rates As part of this continuing tax reform program, the revenue that would have otherwise be earned from conveyance duty is being replaced with an increases in general rates levied on property owners. Rates for residential properties will increase by an average of around 4.5 per cent, and rates for commercial properties will increase by an average of around 7 per cent. The rating system for 2016-17 will have the following elements:  A fixed charge of: – $765 for residential properties – $150 for rural properties – $2,235 for commercial properties.  A percentage rate applied to the Average Unimproved Land Value (AUV) for 2016 (which is the average of 2014, 2015 and 2016 land values)  A pensioner rebate cap (for residential properties) of $700 for post 1 July 1997 applicants. Land Tax Land tax assessments in 2016-17 will be based on a valuation based charge on the AUV for 2016 and a fixed charge of $1,090. In 2016-17, the Government will increase the fixed charge component of land tax by $100. The estimated outcome for land tax revenue in 2015-16 is $99.1 million and is estimated to increase to $110.3 million in 2016-17. Fire and Emergency Services Levy (FESL) The FESL in 2016-17 will have the following elements:  A fixed charge of $252 for residential and rural properties (an increase from $196)  A pensioner rebate of $98  A valuation-based charge for commercial properties with progressive marginal rating factors applied to the average of the 2014, 2015 and 2016 AUVs. TaxTalk Monthly July 2016 PwC 8 Motor vehicle registration fees The Government has indexed motor vehicle registration fees by 5 per cent from 2015-16. Lifetime Care and Support Levy (LTCS) The Government will introduce a new LTCS levy on workers’ compensation insurers and self-insurers, and a $1 increase in the LTCS levy applying to Compulsory-Third Party Insurance Policies issued under the Road Transport (Third-Party Insurance) Act 2008. Safer Families Levy The Government will introduce a new Safer Families Levy on 1 July 2016. The levy will be $30 per year and will be applied to all residential and rural properties. For further information, contact Costa Koutsis on +61 (3) 8266 3981 or at [email protected] Tasmanian State Budget The 2016-17 Tasmanian Budget was delivered by the Tasmanian Treasurer on 26 May 2016. The Budget contained the following tax measures:  introduction of a corporate reconstruction/consolidation duty exemption for corporate group reorganisations. This brings Tasmania in line with the other States and Territories  the First Home Owner Grant will increase from $10,000 to $20,000 until 30 June 2017 (but will also be backdated to 1 January 2016), and  broadening of the permitted use of the current duty exemption for demonstrator vehicles. The Budget also includes the deferral of two previous commitments. Firstly, the reduction of duty on compulsory third party motor vehicle insurance premiums and secondly, the reduction of the motor vehicle duty tax rate on light vehicles. No date is indicated as to when these previously announced reductions will take effect. For further information, contact Ilyas Elahi on +61 (3) 8603 4371 or at [email protected] Let’s talk For a deeper discussion of how these issues might affect your business, please contact: Barry Diamond, Melbourne +61 (3) 8603 1118 [email protected] Costa Koutsis, Sydney +61 (2) 8266 3981 [email protected]