Duties doldrums: NSW budget makes significant changes to stamp duty that will cause a re-think on commercial transactions

Labor's first budget in New South Wales in over a decade was handed down on 19 September 2023 and is full of unexpected (and unwelcome) surprises.

UPDATE 28/09/2023: the Treasury and Revenue Legislation Amendment Bill 2023 received asset on 27 September 2023 and the measures below are now law.

Private unit trusts will no longer be treated like private companies

• The landholder duty threshold for a private landholder that is a private unit trust scheme is being reduced from 50% to 20%.
• Other private landholders such as "registered unit trust schemes" and private companies will continue to have the significant interest threshold of 50%.

• No changes are proposed to public landholders being listed companies, listed trusts and widely held unit trusts, which require an acquisition of 90% or more to attract duty. Note that New South Wales no longer taxes these at concessional rates.

Key takeaway

Unit trusts will no longer be treated like companies in New South Wales. This puts New South Wales on a level playing field with Victoria instead of being a more attractive destination for property investors who could buy slightly below a 50% interest in a private unit trust without the added stamp duty costs.

New rules for "linked entities"

• Under the proposed amendments, the threshold for entities to be linked entities for landholder duty purposes will be reduced from 50% to 20%. Again, this aligns New South Wales with the linked entity rules in Victoria.

• Any entity in a chain will be linked to another entity where one of those entities will be entitled to receive not less than 20% of the value of the property of the other entity in the event of a distribution of all the property of that other entity.

Key takeaway

• A private company or private unit trust which holds a 20% interest in another private company or private unit trust (a "linked entity") will be imputed with any land or interests in land held by that linked entity. This will have broad implications on acquisitions of interests in land holding companies or trusts.

Introducing the concept of Wholesale Unit Trusts and Imminent Unit Trusts into the New South Wales Duties Act

Registered Wholesale Unit Trusts

• A new regime for registration of wholesale unit trust schemes is being introduced.
• The significant acquisition threshold for registered wholesale unit trust schemes will be 50%.
• The New South Wales regime will require that:
  • at least 80% of all investors in a wholesale unit trust be qualified investors;
  • no qualified investor, either alone or together with associated persons, hold 50% or more of the units in wholesale unit trust scheme;
  • the wholesale unit trust scheme not have been established for a particular investor; and
  • any other additional requirements that the Chief Commissioner may specify as published in the Gazette.
• The qualified investor criteria are very similar to Victoria and also require foreign investors to apply to the Chief Commissioner to be recognised as a qualified investor.

• Transitional provisions will apply to enable acquisitions made in a scheme on or after 1 February 2024 to be an acquisition in a registered wholesale unit trust if the application to register the trust as a wholesale unit trust was made before 1 May 2024 and the application is approved.

Imminent Wholesale Unit Trusts

• A trust can be registered as an imminent wholesale unit trust if the Chief Commissioner is satisfied that it will be able to meet the criteria for a wholesale unit trust scheme within 12 months after the date on which the first units in the trust are issued to a qualified investor.

• The significant acquisition threshold for registered wholesale unit trust schemes will be 50%.

Key takeaway

Although New South Wales is adopting a similar regime to Victoria, the qualified investor threshold of 80% is higher than the 70% required by Victoria. This will make it more difficult for a unit trust to qualify as a wholesale unit trust in New South Wales.

Corporate reconstruction relief will no longer be a full exemption

• New South Wales will remove the full exemption from duty for corporate reconstruction transactions and corporate consolidation transactions and replace those with a concessional treatment (similar to that in Victoria). Under the proposed new rules, only a 90% reduction in duty otherwise chargeable will be given to successful applications, resulting in 10% duty being payable in New South Wales.
• Transitional provisions will assist in relation to ensuring that transactions that occur after the changes come into force on 1 February 2024 but which came about because of an arrangement entered into before 19 September 2023 will get the full exemption provided that the application for the exemption is made on or before 1 April 2024.
• Any transactions that occur before 1 February 2024 will continue to get the full exemption.

Key takeaway

Multiple transaction steps in a restructure involving the same dutiable property will be caught out by the changes to the corporate reconstruction relief provisions with a 10% duty leakage for each restructure step that is a dutiable transaction. Victoria only charged 1 lot of duty (10%) for corporate reconstruction transactions relating to the same property which occur under multiple transaction steps provided they occur within a 30-day period. New South Wales is providing no such concession.

Taxpayers who have been deferring restructures should take the window of opportunity to save on the 10% of duty that would otherwise be payable by completing the restructures before 1 February 2024.

Changes to nominal duty

?Increasing the amount of fixed duty payable on:

• duplicates or counterparts from $10 to $20;
• subsequent instruments for dutiable transactions effected by more than one instrument, and on transfers of dutiable property as a consequence of a change in trustees from $50 to $100;
• certain transfers and instruments relating to managed investment schemes from $50 to $500; and
• declarations of trusts over unidentified or non-dutiable property from $500 to $750.

Land tax principal place of residence exemption tightened

• The measures remove the ability to claim a principal place of residence exemption from land tax for if all of the persons who use and occupy the land as a principal place of residence do not own at least a 25% interest in the land.
• The Land Tax Management Act 1956 will be updated for the premium rate thresholds for the land tax years of 2009 to 2023 (although there is no word yet on whether the rates and thresholds will be updated in the Duties Act 1997).

Changes to the penalties and interest regime

The Taxation Administration Act 1996 will be amended so that the Chief Commissioner may remit penalties and/or interest and to clarify that the remission of one does not necessarily necessitate the remission of the other.

Key date

All of the abovementioned changes are all slated to take effect from 1 February 2024.