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Focus: Tax – May 2008

Recent developments in stamp duty (part 2)

In brief: In the second part of our two-part series on changes to stamp duty across Australia, Partner Adrian Chek (view CV) and Senior Associate Katrina Parkyn look at recent developments in stamp duty in the Australian Capital Territory, New South Wales, Tasmania, Victoria, South Australia and the Northern Territory.

• Australian Capital Territory
• New South Wales
• Tasmania
• South Australia
• Victoria
• Northern Territory
• Queensland
• Conclusion

Australian Capital Territory

The ACT has recently introduced two Bills relating to stamp duty.

The first Bill is the Duties (Landholders) Amendment Bill 2008 (ACT), which substantially amends the existing ACT landholder provisions. The main changes may be summarised as follows: 

These changes may result in the ACT landholder rules applying to a wider range of transactions than they have previously because:

• in the case of private unit trust schemes, the threshold for triggering duty has been reduced from 'more than 50 per cent' to '20 per cent or more'; and
• the new provisions will require tracing of landholdings through entities where there is a 20 per cent interest. The current rules only require tracing through 'subsidiaries', which generally requires an interest of more than 50 per cent.

Other, more subtle, changes that will also increase the scope of duty are:

• in the case of private companies, the threshold for triggering duty will change from 'more than 50 per cent' to '50 per cent or more'; and
• for the purpose of determining whether the threshold trigger for duty has been reached², the new rules will require interests to be aggregated where parties are 'acting in concert' or the acquisitions take place under 'substantially one arrangement', even though the acquiring parties are not associated. Previous experience in other jurisdictions suggests that these rules will require careful consideration, especially in the context of mergers and acquisitions of landholding entities.

Also significant is the introduction of a regime for the registration of wholesale unit trust schemes and imminent public unit trust schemes, similar to that in New South Wales.

The second Bill is the Duties Amendment Bill 2008 (ACT), which, if enacted, will abolish the following minor duties:

• duty on the establishment of, and changes to, trusts over non-dutiable property;
• duty on instruments relating to managed investment schemes that do not transfer any dutiable property; and
• duty on certain instruments relating to superannuation funds.

Duty will continue to be imposed on the establishment of, or changes to, trusts involving dutiable property. If the Bill is enacted, the changes will come into operation on the day after the Act receives notification.

New South Wales

The State Revenue Legislation Amendment Bill 2008 (NSW) was introduced into Parliament on 9 April 2008.

Two of the more significant changes proposed by the Bill are:

• To extend the 'land-rich' provisions by extending the situations in which an interest may be acquired in a land-rich company or unit trust.

Currently duty is imposed where a person (either alone or with associated persons) acquires a 'significant interest' in a land-rich company or unit trust. Duty is also imposed where a person who already has a significant interest (either alone or with associated persons), acquires a further interest. The trigger for acquiring a significant interest is 20 per cent or more in the case of a private unit trust, and 50 per cent or more otherwise (for private companies and wholesale unit trusts).

The current rules focus on the acquisition of a legal interest in the land-rich entity. The Bill will extend the situations in which an acquisition will be dutiable by providing that a person acquires an interest if that person holds an interest in a land-rich landholder (whether or not as trustee for another person) and the capacity in which the person holds the interest changes (including if there is a change in the beneficial ownership of an interest held by a person as trustee).

This means that a change in the capacity in which a person holds an interest in a land-rich landholder will be regarded as the acquisition of an interest in a land-rich landholder. An example mentioned in the Bill is where a person who holds a unit or share in a land-rich landholder declares a trust in respect of the unit or share, such that the capacity in which they hold their interest changes.

The proposed change is a specific amendment that applies only where a person changes the capacity in which they hold an interest. However, this does not change the basic position that the land-rich rules target persons who acquire a legal interest in the landholding entity, with the question of beneficial ownership being relevant only to the application of the 'associated person' tests (ie whether the interest acquired/held by one legal owner can be aggregated with the interest of another legal owner).

• To amend the provisions which relate to quoted marketable securities to specifically include securities that have stopped being quoted on a stock exchange merely because the quotation has been suspended (unless the body that issued the securities has ceased to be included in the official list of the stock exchange), as well as stapled securities that are quoted on a stock exchange.

The first part of this amendment overcomes the decision in Amatek Holdings Limited³, in which the Western Australian State Administrative Tribunal held that the exemption from duty for shares 'listed' on a prescribed stock exchange did not apply to shares that were suspended from quotation at the relevant time.

The latter amendment relating to stapled securities is also consistent with the decision in Westpac Custodian Nominees⁴, where the Supreme Court of Western Australia overruled a first instance decision that the provisions in the Stamp Act 1921 (WA) relating to quoted marketable securities did not apply to stapled securities because the component securities did not have an individually identifiable price quoted on the stock exchange.

If the Bill is enacted in its current form, both of these changes will take effect from the date of assent.

Tasmania

Tasmania has recently passed the Taxation and Related Legislation (Miscellaneous Amendments) Act 2008 (Tas), which has broadened the Tasmanian land-rich stamp duty provisions by:

• reducing the threshold land ownership test for determining whether a private company or unit trust is 'land-rich' from 80 per cent to 60 per cent. This 60 per cent threshold is in line with the existing position in Queensland, NSW, Victoria, South Australia and (until 1 July 2008) WA (WA will move to a 'landholder' regime from 1 July 2008)⁵; and
• reducing the threshold for determining whether a relevant acquisition has been made from 'more than 50 per cent' to '50 per cent or more'. This is in line with NSW, Victoria, the Northern Territory, Queensland and South Australia.⁶

These changes took effect on 2 May 2008. Duty on the acquisition of business assets will be abolished with effect from 1 July 2008, as previously announced.

South Australia

In South Australia, the Stamp Duties (Trusts) Amendment Bill 2008 (SA) proposes to amend the 'look through' provisions that impose duty on certain instruments relating to trusts that own or have an interest in South Australian property.⁷

The existing South Australian provisions are drafted on the basis that a beneficiary of a trust has an 'interest' in the property of the trust and that a dealing by a beneficiary in respect of their interest in a trust is a transaction affecting an 'interest in property subject to a trust'. However, in CPT Custodian⁸, the High Court held that a unit holder in the particular unit trust being considered in that case did not have an equitable estate or interest in land that was subject to the trust.

The changes in the Bill are aimed at overcoming the impact of this decision by introducing a new provision, which deems the holder of a unit in a unit trust to have a beneficial interest in the trust property and the transfer, creation, surrender, renunciation, redemption, cancellation or extinguishment of a unit to be a transfer etc of that deemed beneficial interest in the trust property.

The amendment will operate both prospectively and retrospectively.

Victoria

Victoria has introduced the State Taxation Act Amendment Bill 2008 (Vic), which contains a range of amendments to the Duties Act 2000 (Vic).

One of the more notable changes is the introduction of a new type of corporate reconstruction relief where a stapled entity is reorganised by way of the interposition of a head trust between the existing stapled security holders and the stapled entity. This is broadly intended to operate in conjunction with the capital gains tax (CGT) rollover relief introduced in subdivision 124-Q of the Income Tax Assessment Act 1997 (Cth).

The Victorian Bill provides the security holders with relief from land-rich duty arising in the course of, or as a result of, such a rollover. Notably, the relief is only available for the security holders. There is no relief for the entity being interposed, which acquires interests in the stapled entity. It is our understanding that the relief was not intended to be limited in this way. However, given the absence of relief in the draft legislation, it will be necessary to wait and see how the Victorian State Revenue Office (SRO) addresses this issue. Under its new Duties Act, Western Australia will provide relief for both the security holders and the entity being interposed in the same circumstances.

Some of the key conditions of relief being granted in Victoria are:

• The shares or units in the stapled entities to which the rollover relates must be either: (a) listed at the time the relevant acquisition was made, or (b) intended to be listed within three years, commencing on the day on which the relevant acquisition was made. The CGT rollover relief is not limited to listed trusts. In that sense, the availability of stamp duty relief is narrower than the CGT rollover relief.
• The relevant acquisition must not arise from arrangements or a scheme devised for the principal purpose of taking advantage of the benefit of the relief.

If relief is granted, it may be revoked if the stapled entities do not remain 100 per cent owned by the interposed trust for at least three years following the date on which the relevant acquisition is made.

Relief will not be revoked where the stapled entities do not remain 100 per cent owned by the interposed trust by virtue of:

• the stapled entities being publicly floated within 12 months after the date on which the relevant acquisition is made;
• the shares or units of any of the stapled entities being unstapled to enable the winding up of a stapled entity; or
• the winding up of any of the stapled entities.

If relief is revoked, each exchanging member is jointly and severally liable for the payment of the duty and any penalty or interest that is imposed. It appears that this is intended to render all of the security holders in the stapled entity prior to the rollover jointly and severally liable for the duty, penalties and interest. The policy rationale for this appears to be based on the SRO's view that the acquisition of interests in the interposed trust would occur as part of an 'associated transaction' resulting in a 100 per cent relevant acquisition in the interposed trust.⁹ As a practical matter, this joint and several liability may mean that taxpayers may find it unattractive to rely on the relief, if there is the prospect of all exchanging members being rendered jointly and severally liable in the event that relief is revoked for reasons outside their control.

Northern Territory

In its budget on 8 May 2008, the Northern Territory announced, with effect from that date, the cutting of its conveyance duty rates. The top marginal rate of stamp duty rate will be cut from 5.4 per cent to 4.95 per cent, with a threshold of $525,000 (previously $500,000); and the minimum rate will be cut from 2.1 per cent to 1.5 per cent.

Queensland

No significant stamp duty changes have been announced or are currently pending in Queensland.

Conclusion

This latest round of amendments to stamp duty in the various states and territories reflects the overall policy direction of stamp duty becoming, in essence, a tax based on land (including dealings in entities that own land). The changes will increase the scope of transactions relating to landholding entities that will be potentially subject to duty. This will be of particular importance to the property investment industry, the mining industry and infrastructure.

On the other hand, the introduction of additional corporate reconstruction relief in Victoria is a welcome change although, for the reasons noted above, it remains to be seen whether taxpayers find it attractive to rely on the relief in its current form.

Footnotes

1. CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] 224 CLR 98.
2. Under the new rules, the threshold trigger for duty will be 20 per cent or more in the case of private unit trust schemes and 50 per cent or more in the case of private companies and wholesale unit trust schemes.
3. Amatek Holdings Limited and Commissioner of State Revenue [2006] WASAT 197.
4. Westpac Custodian Nominees v Commissioner of State Revenue [2008] WASCA 18.
5. The essential difference between a landholder regime and a land-rich regime is that the former dispenses with a 60 per cent or 80 per cent land-rich ratio as a precondition to taxation of the relevant entities.
6. Other than for private unit trust schemes in NSW and Victoria, where the threshold is 20 per cent or more.
7. Section 71(2) of the Stamp Duties Act 1923 (SA).
8. CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] 224 CLR 98.
9. Under section 82(1)(c) of the Duties Act 2000 (Vic), where a relevant acquisition results from the aggregation of interests of persons who acquire their interests as part of an associated transaction, each person who acquires an interest as part of the associated transaction is jointly and severally liable for the duty.
   

For further information, please contact:

• Adrian ChekPartner, Sydney
  Ph: +61 2 9230 4800
  Adrian.Chek@aar.com.au
• Peter AllenPartner, Brisbane
  Ph: +61 7 3334 3350
  Peter.Allen@aar.com.au
• Michael PerezPartner, Melbourne
  Ph: +61 3 9613 8500
  Michael.Perez@aar.com.au
• Katrina ParkynSenior Associate, Brisbane
  Ph: +61 7 3334 3323
  Katrina.Parkyn@aar.com.au

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