The State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 (NSW) received royal assent on 19 May 2022 and the changes to the NSW Duties Act, Land Tax Act and Taxation Administration Act are now in effect.
Key changes effective from 19 May 2022 include:
- extending ‘dutiable transactions’ to include changes in beneficial ownership;
- the grant of a put and/or call option is now dutiable and required to be lodged for stamping;
- a mere acknowledgement of the existence of a trust will now be a dutiable transaction;
- extending the family farm concessions to allow the transfer to a family member controlled entity;
- commencement of general anti-avoidance provisions in the Taxation Administration Act to broaden their application across all NSW state taxes;
- commencement of promoter penalties for promoters of tax avoidance schemes;
- increasing the base penalty rate for large multinationals to 50% of the shortfall of a tax or duty liability;
- granting powers to the Chief Commissioner to provide relief from surcharge purchaser duty for land which is used wholly or predominantly for commercial or industrial purposes by Australian based developers; and
- granting the Chief Commissioner authority to issue reassessments for surcharge liability within five years of the initial assessment for Australian based developers who are foreign persons.
Changes in beneficial ownership
Duty is now payable on transactions which result in a change of beneficial ownership of dutiable property and will include:
- the creation of dutiable property;
- the extinguishment of dutiable property;
- changes in equitable interests in dutiable property; and
- dutiable property becoming or ceasing to be the subject of a trust.
As a result of the changes, the following transactions are now dutiable and may need to be lodged for stamping:
- grant of a put and/or call option;
- any changes of a beneficiary’s equitable interest in a trust which holds dutiable property;
- transfers granting an easement; and
- transfers creating a life tenancy (other than by Will or testamentary instrument).
It is worth noting that a particular point in NSW, is that where there is a “dutiable transaction” but the duty payable would be less than $10, minimum duty of $10 will be payable.
Put and call options
Previously in NSW, the grant of a put and/or call option was not dutiable and there was no need to lodge the option for assessment. Grants of a put and/or call option over NSW dutiable property will now need to be lodged for assessment and stamping.
This means that if a call option is granted with an option fee of $10, or even $1, the duty payable will be $10. There is no provision in the NSW Duties Act which allows duty paid on the option fee to be credited towards any other duty payable once the option is exercised.
Beware the expansion of declaration of trust provisions
The definition of a ‘declaration of trust’ in the NSW Duties Act is quite broad and it has long been speculated it would apply where a trust is acknowledged or the terms restated, for example, in the case of a lost or misplaced trust deed.
The decision of the NSW Supreme Court of Appeal in Chief Commissioner of State Revenue v Benidorm Pty Ltd handed down in late 2020, determined that where a document was a mere acknowledgement of a dutiable transaction, it did not mean that the document would be subject to duty. Of significance to the determination was that under the NSW Duties Act, duty was imposed on transactions, rather than on instruments (which was the case with the previous Stamp Duty Act).
Since 19 May 2022, it is now clarified the position that an ‘acknowledgement of trust’ will include the making of any statement that:
- purports to be a ‘declaration of trust’, but
- merely has the effect of acknowledging that identified property vesting, or to be vested, in the person making the statement is already held, or to be held, in trust for a person or purpose mentioned in the statement.
It is recommended advisors exercise care when preparing any trust documentation or other documentation to ensure that the wording used does not give rise to an acknowledgement of trust and trigger duty on any NSW dutiable property.
Structuring the transfer of the family farm
A positive addition to the changes is the expansion of the exemption available for the transfer of primary production land between family members.
Under the previous provisions the person acquiring the land (transferee) had to be an individual and the transfer could not be to a trust. While there was the ability to transfer to a company controlled by the transferee, but the conditions to be satisfied were overly complex.
The exemption has now been simplified to allow the transferee to be a company, trust, superannuation fund or other entity provided it is ‘controlled by a family member of the transferor’.
This is a great incentive for farming families to engage in succession or asset planning for the future, while also allowing the next generation to set up a structure which provides asset protection and taxation benefits for their business going forward.
Administrative considerations
To administer these changes, NSW Revenue have released a number of new forms and evidentiary requirements which need to be provided when lodging these transactions for assessment.
It is likely that over the coming months we will see several new revenue rulings and guidance on the NSW Revenue website as to how to navigate these changes.