The State Revenue Legislation Amendment Bill 2017 (NSW) (SRLA Bill) passed through New South Wales Parliament on 4 April 2017 and is awaiting Assent.
The SRLA Bill makes a number of important changes to improve the effectiveness and reach of the landholder duty rules and the general anti-avoidance provisions in the Duties Act 1997. Below is a summary of the key key changes.
- The circumstances that the Chief Commissioner will take into account in determining whether a landholder duty liability arises because of the aggregation of acquisitions occurring pursuant to “substantially one arrangement” will be expressly set out. Notably, these factors include:
- whether any of the acquisitions are conditional on entry into, or completion of, any of the other acquisitions; and
- whether, before or after the acquisitions take place, the interests were, are or will be used together or dependently with one another.
- For the purposes of determining whether a company or unit trust is a landholder, and for calculating the duty chargeable on a relevant acquisition, the rules concerning constructive ownership of property will be expanded such that:
- Linked entities – the company or unit trust’s land holdings are taken to include also interests in land of entities that are “linked” by virtue of that company or unit trust being entitled to receive at least 50% of the value of all of the property of the entities in the chain if all of that property were distributed. This change means that it is no longer necessary for the 50% test to be satisfied separately in respect of each constituent link in the chain of entities below the principal company or unit trust;
- Landholdings recently transferred – the existing anti-avoidance measure ensuring that certain New South Wales land holdings transferred from a unit trust scheme or company to the acquiring person or an associate of that person in the 12 month period before the person acquires an interest in the scheme or company are counted as part of the company or unit trust’s land holdings, covers also agreements for the sale or transfer of land holdings; and
- Uncompleted agreement involving land – the deeming provision in respect of uncompleted agreements for the sale or transfer of New South Wales land (whereby the transferor and the transferee are taken to be separately entitled to the whole of the land) applies also to arrangements that include both a put option and a call option.
- More generally, in determining the entitlements to the property of landholders or linked entities as referred to above, the liabilities of those entities will be disregarded.
- Finally, the “agreement liability date” (ie the date on which a person is deemed to have acquired an interest in a landholder (currently, the earlier of certain events including the completion of the agreement and the payment of the consideration or issue)) will be broadened so that if that company or unit trust ceases to be a landholder on that “agreement liability date” but was a landholder on the date when the agreement was made, the date that the agreement was made will be taken to be the “agreement liability date” for the purposes of determining landholder duty liability.
General anti-avoidance provisions
- The SRLA Bill strengthens the duties general anti-avoidance provisions (GAAP) and follows amendments to the equivalent provisions in the Commonwealth income tax legislation. The purpose of the amendments is to ensure that the taxpayer cannot defeat the operation of the GAAP by claiming that the transaction would not have happened if the duty were payable. The new version of the GAAP will apply a ‘reasonable counterfactual’ test in determining the amount of duty avoided as a result of an artificial, blatant or contrived scheme. This test will allow the Chief Commissioner to have regard to what duty would have been payable if a reasonable alternative to entering into or making the scheme had been adopted (being an alternative that would have achieved the same economic or commercial result as the scheme, other than the result of avoiding or reducing the duty).
Other noteworthy changes
- In response to the recent Supreme Court decision in CCM Holdings Trust Pty Ltd v Chief Commissioner of State Revenue  NSWSC 1072 (Cross City Tunnel sale case) that was unfavourable for the Chief Commissioner, the nominal stamp duty concession that applies to the transfer of dutiable trust property to a new trustee of an existing trust will be narrowed such that the concession is no longer available where the transfer involves conferring an interest in relation to the dutiable trust property, so as to cause any person (whether or not as a beneficiary) to cease holding a beneficial interest (or potential beneficial interest) in that property. The Supreme Court decision in the Cross City Tunnel sale case effectively upheld the availability of the change of trustee concession for a transfer of the Cross City Tunnel business in 2007 notwithstanding that, among other things the transfer was part of a stamp duty avoidance scheme and there was a clear change in both the identity of, and the beneficial interest in, the trust property. The availability of the concession resulted in the sale of the Cross City Tunnel for a purchase price in the order of $695 million effectively only being subject to nominal duty of less than $1,000.
- The definition of “associated person” for the purposes of aggregating interests in determining any transfer duty or landholder duty liability will be broadened to allow for tracing through to sub-trusts (with the exception of public unit trusts). For example, a company and a trust will be “associated” if any related body corporate of that company is a beneficiary of any sub-trust (not being a public unit trust scheme) of that trust.