Focus: Stamp duty – NT landholder duty and other budget changes
20 May 2009
In brief: The Northern Territory Government recently released its budget for 2009-10, which announced a number of changes to stamp duty in the NT, including the imposition of landholder duty on the acquisition of listed companies and trusts. Taxpayers are also reminded that, with effect from 1 July 2009, NSW will be introducing new and broader landholder provisions, and South Australia will be abolishing mortgage and rental business duty. Partner Adrian Chek (view CV), Senior Associate Katrina Parkyn and Law Graduate Gobind Kalsi look at the proposed NT changes and at how they will affect taxpayers.
- Overview of NT changes
- Changes to landholder stamp duty
- Introduction of relief from landholder duty where listed stapled entities are reorganised by way of 'top-hatting'
- Other changes
- Reminder about NSW changes
- South Australia abolishes mortgage and rental business duty
How does it affect you?
- The NT changes will have consequences for a wide range of taxpayers. For example:
- taxpayers who had planned to defer entering into transactions affected by NT duty on the transfer of non-land business assets on the basis of the previous timetable for the abolition of these duties will need to reconsider their position; and
- purchasers of companies and unit trusts (listed or unlisted) that own land in NT will need to consider the potential impact of the changes to the landholder rules.
The proposed amendments to NT stamp duty include:
- extension of the NT landholder rules to the acquisition of interests in listed entities that own or have an interest in NT land;
- extension of the circumstances in which NT landholder duty can arise (for both listed and unlisted entities);
- an increase in the acquisition threshold for triggering landholder duty for unlisted unit trusts from 20 per cent to 50 per cent;
- the introduction of relief from landholder duty where listed stapled entities are reorganised by way of 'top-hatting';
- the deferred abolition of NT stamp duty on non-land business property; and
- extending the stamp duty exemptions for charities and similar organisations to a wider class of charitable bodies.
The Revenue Legislation Amendment Bill 2009 contains a number of substantial changes to the existing NT landholder provisions. They include the following.
Imposition of landholder stamp duty on listed corporations and unit trusts
The NT landholder provision will be extended to apply to listed entities, with effect from 6 May 2009. Previously, the NT landholder provisions have not generally applied to the acquisition of interests in listed entities.1
Generally speaking, the threshold for listed landholder duty will be the acquisition of a 90 per cent, or greater, interest (as compared with a 50 per cent, or greater, interest in the case of an unlisted NT landholder). The 90 per cent test is applied by aggregating the interests of a person and any related persons.
Bearing in mind that the NT landholder provisions apply to any corporation or unit trust that has an interest in NT land worth $500,000 or more, the new provisions have the potential to apply to the takeover of any listed corporation or unit trust that has an interest in NT land (irrespective of the value of the entity's non-land assets). The application of the new provisions will not be confined to the takeover of an entity that is traditionally considered to be 'land-rich'. As such, this is potentially a very significant extension to the NT revenue base.
As discussed below, there will also be some circumstances in which the acquisition of a less than 90 per cent interest in a listed NT landholder will be liable to duty.
Circumstances in which landholder duty can arise
From 6 May 2009, the circumstances in which NT landholder duty can arise (for both listed and unlisted entities) will be extended to include:
Acquisitions arising from a merger vesting
A merger vesting occurs where there is a merger of companies or unit trust schemes in circumstances where:
- another company or unit trust scheme results as a consequence of the merger – in this case, the resulting entity is taken to acquire 100 per cent of each merging entity;
- the merging entities merge with and into each other, following which each of the merging entity continues to exist – in this case, there is taken to be a 50 per cent acquisition in each merging entity; or
- the merging entities merge with and into another company or unit trust scheme in any other circumstance – in this case, there is taken to be a 100 per cent acquisition in each merging entity.
It would appear that these changes are aimed at imposing landholder duty on transactions that involve entities being merged in a manner that does not otherwise result in anyone 'acquiring' an interest in the merging entity or entities. Although this issue commonly arises in relation to mergers involving foreign companies and financial institutions, the new merger rules are not confined to transactions involving such entities.
Where there is a merger vesting of shares in a listed company or unit trust, the acquisition threshold is reduced from 90 per cent to 50 per cent. (In the case of unlisted entities, the acquisition threshold will in all cases be 50 per cent.)
The effect of these new rules in relation to the first and third scenarios outlined is to impose landholder duty on 100 per cent of the NT landholdings of each merging entity. In the second scenario, landholder duty would be imposed on 50 per cent of the NT landholdings of each merging entity. The result is the same regardless of whether the merging entities are listed or unlisted.
Acquisition of control by means other than a relevant acquisition
New rules will enable the Commissioner to deem that a person has made a relevant acquisition of up to 100 per cent where the person acquires 'control' of an NT landholder other than by way of a relevant acquisition (ie the acquisition of shares/units that confer an interest of specified percentage).
The concept of acquiring control is different from acquiring an 'interest' and is a significant departure from the previous provisions. A person may acquire control of an entity without acquiring any interest.
The test for control looks at a person's capacity to determine or influence the outcome of decisions about any of the landholder's financial and operating policies (this is akin to, but broader than, the definition of control in section 50AA of the Corporations Act 2001 (Cth)). The Victorian land-rich provisions contain a similar provision.
From a taxpayer's perspective, the new 'control' provision presents a number of difficulties:
- While the provision is intended as an anti-avoidance measure, its application is not limited to cases where control is acquired, other than by way of a relevant acquisition, as part of a tax avoidance scheme. Given the broad circumstances in which the provision could potentially apply, it will be difficult for taxpayers and their advisers to determine when the provisions are likely to be applied.
- Northern Territory Revenue Circular RC-SD-003 indicates that in considering whether the new provision will be applied, 'consideration will be given as to whether there is an arrangement that would have the effect of defeating the object of the landholder provisions'. However, given that Revenue Circulars are not binding on the Commissioner, this statement does not, as a technical matter, give taxpayers adequate certainty about when the Commissioner is likely to apply the new provision.
- A person who acquires an interest in a corporation that is below the normal acquisition threshold required to trigger duty (50 per cent for unlisted landholders and 90 per cent for listed landholders) may still acquire 'control' of the landholding entity. For example, consider the case of an NT landholder that has a single 40 per cent shareholder, where the remaining 60 per cent is widely held. It would not be unusual in those circumstances to suggest that the 40 per cent shareholder has, at the very least, the 'capacity to influence' the outcome of decisions about the entity's financial and operating policies. On its face, this is a case to which the new provision could potentially apply. While it would be surprising, in light of statements in Revenue Circular RC-SD-003, if the Commissioner were to apply the provision in such a case, there is nothing in the legislation to prevent it. In practice, therefore, the relevant acquisition threshold for NT landholders could be well below the 'normal' 50 per cent and 90 per cent thresholds.
Arrangements to reduce entitlements
The existing landholder provisions rely on a person having an entitlement to the property of a landholding corporation or unit trust on its winding up.
The Bill contains a new provision that seeks to address a stamp duty avoidance scheme that appears to have involved amending the constitution of a corporation in a way that has the effect of reducing to nil the entitlement of all its shareholders to participate in the distribution of property on its winding up, following which the shares in the corporation are transferred. After the amendment to the constitution, the shares no longer carry an entitlement to participate in a winding up and, therefore, no landholder duty arises. Furthermore, because the shares do not carry an entitlement to participate in a winding up, the shareholders' ability to effect or compel a further constitutional amendment to, in effect, 'reinstate' the shareholders' entitlement to participate in a winding up would not be taken into account under the existing provisions dealing with the maximisation of entitlements.2 Under the new provision, the Commissioner may disregard the arrangement (ie the amendments to the constitution) for the purpose of assessing duty on the subsequent acquisition.
Importantly, however, this new provision will not apply if the Commissioner is satisfied that the arrangement is not part of a tax avoidance scheme.
Acquisition threshold for unlisted unit trusts
The acquisition threshold for duty in relation to unlisted unit trusts has been increased from 20 per cent to 50 per cent. This brings the acquisition threshold for unlisted unit trusts in line with the acquisition threshold for private companies. Assuming that the Bill is enacted in its current form, this change will apply to acquisitions occurring on or after 6 May 2009.
Introduction of relief from landholder duty where listed stapled entities are reorganised by way of 'top-hatting'
From 1 July 2009, relief from landholder duty will be provided on the acquisition of an interest in an NT landholder that is made for the purpose of giving effect to a scheme that would qualify for capital gains tax rollover relief under subdivision 124-Q of the Income Tax Assessment Act 1997 (Cth). That subdivision, broadly, provides CGT rollover relief where a stapled entity is reorganised by the interposition of a head trust between the existing stapled security holders and the stapled entity (commonly referred to as 'top-hatting').
Two additional requirements for relief from NT landholder duty are:
- once the scheme is completed, the interposed trust must be listed on the official list of a recognised financial market. A unit trust will not be treated as being listed if the listing is, or is part of, a tax avoidance scheme; and
- the acquisition of interests in the NT landholder must not be, or be part of, a tax avoidance scheme.
If the interposed trust ceases to be listed within three years after the scheme is completed, there is, in effect, a 'clawback' of relief.
The new NT provisions complement the stamp duty relief that is already available for top-hatting arrangements in NSW, Victoria, Western Australia and South Australia.
Some of the other more significant changes that the new Bill proposes are:
- deferring the abolition of stamp duty on non-land business assets to 1 July 2012;
- extending the existing stamp duty exemptions for public benevolent institutions, religious institutions, public hospitals and schools to certain other charitable organisations. This change will take effect from 1 July 2009;
- removal of the requirement to lodge cancelled agreements for stamping except where a sub-sale of the property or conveyance by direction has occurred. This change will take effect from 1 July 2009; and
- enabling the original purchaser in an agreement to be substituted with a related person without incurring double stamp duty, provided that certain specified conditions are met. This change will take effect from 1 July 2009.
Taxpayers are also reminded of the proposed NSW land-rich duty changes, which are scheduled to take effect from 1 July 2009 and were outlined in our 18 November 2008 Client Update. Taxpayers who are involved in transactions involving interests in companies or unit trusts that own any NSW land that are likely to occur on or or around 1 July 2009 (when the NSW changes are due to come into operation) may wish to consider whether there are any advantages in entering into the transaction before or after this date. For example, if the affected company or unit trust is not presently 'land-rich', parties may wish to consider bringing forward the timing of their transaction.
South Australia has recently passed the Stamp Duties (Tax Reform) Amendment Bill 2009 to give effect to the abolition of various duties.
In summary, the main changes include:
- the abolition of rental business duty from 1 July 2009 – this applies to all rental contracts whether entered into before or after 1 July 2009;
- the abolition of mortgage duty from 1 July 2009 – from that date, NSW will be the only jurisdiction that still imposes mortgage duty; and
- the concessional treatment for exploration licences3 will be extended to geothermal exploration licences.
- Section 56K(1A) of the Stamp Duty Act 1978 (NT) currently provides an exemption from the requirement to lodge a landholder duty statement (and therefore the obligation to pay landholder duty) if, at the time the person makes a relevant acquisition in a NT landholder, the landholding corporation or unit trust (as the case may be) has shares or units that are quoted on a recognised financial market and the quotation was neither a tax avoidance scheme nor part of a tax avoidance scheme.
- Section 56C(6) Stamp Duty Act 1978 (NT).
- Section 71D Stamp Duties Act 1923 (SA).
- Adrian ChekPartner,
Ph: +61 2 9230 4800
- Tony SheehanConsultant,
Ph: +61 2 9230 4781
- Michael PerezPartner,
Ph: +61 3 9613 8500
- Peter AllenConsultant,
Ph: +61 7 3334 3350
- Katrina ParkynPartner,
Ph: +61 7 3334 3323