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Focus: Stamp duty – NSW landholder duty substantially expanded

24 June 2009

In brief: The current land rich regime in NSW will be replaced by new landholder rules that significantly expand the base for assessing duty on the transfer of companies and unit trusts, including listed entities, that hold land in that state. The new rules will potentially also increase the amount of duty payable. Partner Tony Sheehan (view CV) and Senior Associate Heran Kim report.

How does it affect you?

  • The new NSW provisions will apply to a far greater range of transactions and will potentially affect purchasers of companies and unit trusts that own land in NSW.
  • From 1 July 2009, the transfer of shares or units in an entity that merely holds land, directly or indirectly through linked entities, in NSW with a value of $2 million or more, may trigger landholder duty at transfer rates (the highest rate being 5.5 percent) by reference to the value of both the NSW land and any goods owned in NSW.
  • Also, unlike the current land rich regime, which only applies to unlisted entities, the landholder rules will apply to both listed and unlisted entities (although the duty imposed on an acquisition in a listed landholder is at a concessional rate).
  • In addition to the new landholder rules, general anti-avoidance provisions will be introduced into the Duties Act 1997 (NSW).

Overview of changes

The move to a landholder regime will involve:

  • removal of the 60 per cent test;
  • application to listed entities as well as to unlisted entities;
  • an increase in the significant interest threshold for private unit trusts from 20 per cent to 50 per cent;
  • calculation of the duty by reference to the value of NSW goods as well as to the value of NSW land; and
  • a change to the tracing of indirect landholdings through linked entities.

General anti-avoidance provisions will also be introduced into the Duties Act.

Removal of the 60 per cent test

Under current law, duty is payable at transfer rates on a relevant acquisition of an entity that is land rich in NSW. An entity is 'land rich' if:

  • it has (direct and indirect) landholdings in NSW with a value of $2 million or more; and
  • its (direct and indirect) landholdings in all places (both inside and outside Australia) comprise 60 per cent or more of the value of all its property.

The amendments will remove the 60 per cent test so that a relevant acquisition in any entity that simply holds land, directly and indirectly through linked entities, in NSW with a value of $2 million or more will be subject to duty at transfer rates, unless an exemption applies.

Application to listed entities as well as to unlisted entities

Unlike the current land rich provisions, the new landholder rules will also apply to listed entities and widely held trusts. However, the rate of duty will be 10 per cent of the duty that would be chargeable at transfer rates. This amendment will apply to 'relevant acquisitions' (see below) made on or after 1 October 2009.

Threshold interest for a relevant acquisition

The landholder rules will be triggered by the making of a 'relevant acquisition', being the acquisition of an interest in a landholder that alone, or with existing interests, amounts to:

  • 50 per cent or more of a private company;
  • 50 per cent or more of a private unit trust (this is an increase from the current threshold of 20 per cent);
  • 90 per cent or more of a listed company;
  • 90 per cent or more of a listed trust; and
  • 90 per cent or more of a widely held trust (being a unit trust that has 300 unit holders or more and none of whom, alone or with associates, is entitled to more than 20 per cent of the units in the trust).
Calculation of the duty by reference to the value of NSW goods as well as to the value of NSW land

Another significant change is that the duty will be calculated by reference not only to the taxpayer's proportionate interest in the value of the landholder's landholdings in NSW but by reference to the proportionate interest in the value of the landholder's goods (excluding certain items such as trading stock and registered motor vehicles) in NSW. The current law only calculates the duty by reference to the taxpayer's proportionate interest in the value of landholdings. However, the Chief Commissioner will have the discretion to disregard the value of the goods in determining the duty payable if the value of all goods in NSW is 90 per cent or more of the total value of landholdings and goods in NSW.

Tracing indirect landholdings

Indirect landholdings will only be traced through entities that are linked by an ownership interest of 50 per cent or more at each level in the chain of entities, as opposed to the current threshold of 20 per cent or more.

General anti-avoidance provisions

A new general anti-avoidance provision will be introduced, which is broadly similar to Part IVA in the Income Tax Assessment Act 1936 (Cth). It applies where there is a scheme entered into for the sole or dominant purpose of avoiding duty, and the Commissioner issues an assessment.

If the provision applies, then duty (including any interest and penalties) applies from the date it would have been payable had the scheme not been entered into.

The provision applies where a scheme or part of a scheme is carried out on or after 1 July 2009.

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What next?

Purchasers who are party to an uncompleted transaction for the acquisition of shares in a company or units in a unit trust that owns land in NSW (where the company or unit trust is not land rich under the current law) should review their transaction and consider whether it would be appropriate to complete the acquisition before 1 July 2009.

Published 24 June 2009

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