Base broadening, tougher administration and numerous court decisions regarding the fundamental building blocks of the tax have been recurring features of the stamp duty regime in recent years. We expect this year to be no different.
In this TaxTalk Alert we look at what is coming down the legislative pipeline, upcoming land mark appeal decisions and recent trends and developments which we expect will shape the stamp duty landscape in the next year.
Budget season begins
Like all things state taxes, the various States and Territories will deliver their budgets at different times – kicking off in early May and ending in mid-June.
While budget measures are notoriously difficult to predict, an update would be welcomed on when the long overdue abolition of duty on non-land business assets and other nuisance duties is likely. Given continued fiscal constraints, whether these duties are abolished will probably depend on broader tax reform – for example, changes to the GST threshold for online goods. A decision on this is expected in March 2014. NSW has suggested that it may scrap inefficient taxes once the GST threshold for online goods is lowered.
Cross City Tunnel
The NSW Court of Appeal will hear the Commissioner’s appeal in the Cross City Tunnel case (CCT)1 in late February 2014. In CCT, the Supreme Court found that the tolling right in question was not an item of property separate from the land lease. The Court also found that if the tolling right was a separate item of property it would not have been a land asset (and accordingly, not dutiable).
The upcoming appeal is likely to shed further light on the character of a tolling right and more fundamentally, the limits to the meaning of ‘land’ for stamp duty purposes. In the landholder landscape the breadth of what is land, together with the valuation of it, are the principal areas for engagement with the various revenue offices.
CCT is important for investors in the road, rail and port sectors, as well as other assets that are held under a concession or franchise arrangement (for example, social infrastructure). And in the wider world of income tax, it should also be watched closely by foreign investors looking to invest in toll roads and privatised assets more generally, insofar as those assets may include taxable Australian real property.
The Victorian Commissioner has applied for special leave to the High Court to appeal the Victorian Court of Appeal’s decision in the Lend Lease case2 . It is expected that the special leave application will be heard by the High Court in April 2014.
In Lend Lease, the Court of Appeal ruled that the consideration for the transfer of land did not include contractual obligations to make payments relating to the development of infrastructure and construction works on the contracted land and surrounding areas. The consideration was limited to the contract price for the land. Whereas the Supreme Court took a particularly broad approach to the question of what constitutes consideration, the Court of Appeal took a more focussed approach and sought to characterise the payments in light of the broader development transaction taking place between the parties (namely the development of a whole precinct, not just the acquisition of a parcel of land).
While the concept of consideration is a fundamental building block of the stamp duty legislation and clarification is always welcomed, it will be interesting to see if special leave will be granted, given the High Court recently considered the meaning of ‘consideration’ in 20053 . If indeed an appeal occurs, the decision will be particularly relevant for property developers and the infrastructure sector, particularly where the transaction takes place in the circumstances of a multi-party broader development project.
Here come the WA Interim Assessments
We expect to see the Western Australia Office of State Revenue accelerating revenue collection by widely using its new interim assessments powers. The new interim assessment regime was no doubt introduced in response to the increasing number of disputes (and associated delays) arising in relation to the valuation of land-related assets.
Effective from September 2013, the Commissioner can issue an interim assessment for high-value, complex transactions. We have seen, and continue to expect to see, interim assessments in landholder transactions in the mining, infrastructure and utilities sector.
Clients who currently have or are expecting to make WA lodgements need to consider their strategy on valuation and the degree and timing of revenue engagement. The most immediate ‘stick’ in the regime is the inability to object to an interim assessment for three years, even though the Commissioner can effectively nominate his own value for the interim assessment. Together with the ability to recharge valuation costs and impose penalties for ‘under-valuations’ taxpayers simply can’t afford to ‘go in low’ and hope for the best when it comes to valuations.
When will the long-pending NSW amendments become law?
The State Revenue Legislation Amendment Bill 2013 (NSW) is expected to finally pass through Parliament sometime in February or March 2014. Introduced in May 2013, the Bill proposes to abolish the exemption from landholder duty on just and reasonable grounds, abolish the landholder duty exemption which currently applies to land used for primary production, and expand the definition of ‘land’ to capture a wider range of mining tenements (for example, assessment leases and exploration licences) and ensure certain transactions involving options to purchase land are dutiable.
The legislation is of particular interest to those looking to invest in agribusinesses (either to continue to run the business or where there will be a change in use of the land – for example, mining or property development). The changes to options principally affect the property industry, particularly residential developers.
One of the things that need to be monitored as the Bill makes its way through Parliament is whether there will be any change to the commencement arrangements. The amendments were to have effect from the later of 1 July 2013 and the date of assent. Given the extended length of time since the Bill was introduced it will be interesting to see if there are any modifications to the timetable – in particular if some or all of the provisions will have a retrospective effect.
The release of statutory land valuations
Finally, we expect statutory valuations to be issued by the various valuer-general offices in early 2014. The valuations are principally used for land tax and rating purposes. However recent experience suggests the revenue offices in some states are also using valuations to assess at a high level if the value attributed to land in transactions is reasonable.
Review your valuations carefully – historically, errors have been known to arise (for example, properties being incorrectly described, failing to take into account heritage, zoning or contamination issues). When you receive your valuation, you have the opportunity to object to it but with short deadlines (generally 60 days) you need to act quickly.