The States and Territories committed to a time-line for the abolition of various state taxes and duties as part of the introduction of the GST and in return for the Commonwealth’s commitment to distribute GST revenue to them. All states and territories have abolished duty on listed shares (marketable securities), with other duties in various stages of abolition.
From 1 January 2009 a new Intergovernmental Agreement on Federal Financial Relations took effect. Under this agreement, 1 July 2013 is the ultimate deadline for the abolition of any remaining duties on the transfer of non-land business assets, non-quotable marketable securities, leases, mortgages and other loan securities, credit arrangements, instalment purchase arrangements and rental arrangements, cheques, bills of exchange and promissory notes.
The latest state and territory budgets were handed down in May and June this year and many budgets pushed back abolition dates to take advantage of the new deadline. With the global financial crisis and many State and Territory governments feeling the pinch, there is a clear reluctance to give up many State taxes and rely on the GST revenue. The recent re-introduction of lease duty in Victoria and changes in NSW to land rich duty and mortgage duty highlight this trend. These changes are summarised below, followed by a round-up of all State and Territory budgets.
Victoria – Duty re-introduced on leases
The controversial Duties Amendment Act 2009 (Vic) is now law. It introduces changes, which apply retrospectively from 21 November 2008, so that the following transactions are now dutiable transactions in Victoria:
- “the granting of a lease for which any consideration other than the rent reserved is paid or agreed to be paid”;
- “the transfer or assignment of a lease for which any consideration is paid or agreed to be paid” (irrespective of whether a lease premium was paid on the initial grant of the lease); and
- “the surrender of dutiable property” (including a lease of a kind referred to in the above dutiable transactions).
Where one of the above dutiable transactions occurs, duty will be payable on the greater of the consideration (other than the rent reserved that is paid or agreed to be paid) and the unencumbered value of the land that is the subject of the lease.
Click here to view our full update on this change.
New South Wales – Land Rich Duty Changes
On 17 June 2009, the NSW Government released draft legislation giving effect to the major changes to land rich duty announced in the NSW mini-budget of 11 November 2008. The changes will mostly apply from 1 July 2009. The most significant are:
- the land ratio test will be removed. That is, land-rich duty will apply to acquisitions of “significant interests” in landholders that breach the land value test (i.e. hold NSW land with an unencumbered value of $2m or more regardless of how valuable non-land assets are);
- the 20% acquisition threshold for private unit trusts will be lifted to 50%, which will align it with the acquisition threshold for private companies;
- the land-holder provisions will be extended to apply to public unit trusts and listed companies, but with some concessions, such as a 90% acquisition threshold and a lower rate of duty; and
- the introduction of a general anti-avoidance provision.
Click here to read our full update on these new measures.
New South Wales – Changes to Mortgage Duty
On 17 June 2009, major changes to mortgage duty were also announced, to apply from 1 July 2009. The changes will apply to mortgages where a liability for mortgage duty arises on or after 1 July 2009. The changes will also apply to existing mortgages where a further advance is made on or after 1 July 2009 and before 1 July 2012 (when mortgage duty is scheduled to be abolished). The major changes are:
- Limited mortgages will no longer be effective due to changes in the way the “amount secured by the mortgage” must be calculated;
- a new method applies to calculate mortgage duty on further advances which may result in an increase in duty where the proportion of NSW secured property increases between the date of the original and further advance; and
- changes to the “mortgage package” provisions, which could result in additional mortgage duty where the NSW proportion of secured property has increased since the advances under the original mortgage, even if no further advance is made in connection with the new mortgage.
Click here to read our full update on these measures.
A summary of the various state and territory budgets, and the abolition of the remaining duties follows.
Click here for summary.