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Significant changes to various New South Wales state taxes legislation – State Revenue and Fines Legislation Amendments (Miscellaneous) Act 2022 (NSW)

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Background

The State Revenue and Fines Legislation Amendments (Miscellaneous) Act 2022 (NSW) (Act) received Royal Assent on 19 May 2022.

The Act makes a number of amendments to various New South Wales legislation, including some state tax legislation such as the Duties Act 1997, First Home Owner Grant (New Homes) Act 2000, Land Tax Act 1956 and the Taxation Administration Act 1996.

This article summarises the more significant state taxation changes effected by the Act, involving changes to the Duties Act 1997 and the Taxation Administration Act 1996.

Key Amendments to Duties Act 1997 (NSW)

1. Imposition of duty on changes in beneficial ownership – This is modelled on the broader dutiable transaction provisions in the Victorian Duties Act 2000  and aims to broaden the definition of dutiable transaction to include any transaction that results in a change in beneficial ownership.

2. Imposition of duty on acknowledgment of trust – This measure is in response to the NSW CCSR loss in Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285.

In Benidorm, the NSW Court of Appeal held that in order for a declaration of trust over dutiable property to give rise to a dutiable transaction, it must actually effect a transaction and not merely acknowledge an existing state of affairs. The Court of Appeal noted that this was in line with the modernisation of the Duties Act which aimed to charge duty on transactions rather than on instruments.

The proposed amendments aim to reverse the decision in Benidorm such that in the context of declarations of trust, duty applies on any statement or acknowledgement that can be construed as a declaration of trust even if no transaction is effected.

As a result, trustees must be aware that the execution of any document that contains wording that is capable of being construed as a statement of a declaration of trust is capable of triggering duty even if the trust is already constituted. This will mean that a trustee can end up paying additional duty even if original duty has already been paid on the acquisition of the property by the trustee. 

3. Refund of foreign surcharge purchaser duty (FSPD) – This provides for a refund of FSPD where surcharge duty has been paid and if after the transfer the land is used by the transferee wholly or predominantly for commercial or industrial purposes.

The refund applies where:

  • an Australian corporation (being a corporation incorporated, or taken to be incorporated, under the Corporations Act 2001 (Cth) that is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 (Cth)) has paid FSPD on a transfer of residential-related property;

  • the land has been used by the Australian corporation or a related body corporate, after completion of the transfer, wholly or predominantly for commercial or industrial purposes; and

  • an application is made for a refund of FSPD:

    • within 12 months after the start of the use of the land wholly or predominantly for commercial or industrial purposes; and

    • no later than 10 years after completion of the transfer of the residential-related property to the Australian corporation.

4. Exemptions from duty – primary production land transfers between family members – The current primary production land duty exemption only applies if transferee is an individual. The amendments extends the exemption so that it applies when the transferee is a deceased estate, a trust, a superannuation fund, a private unit trust scheme or a proprietary company. In that case, the family member must be the person directing the transferee.

In addition, if the transferee is a proprietary company, or a trustee of a discretionary trust or a private unit trust scheme, the person directing the transferee must, maintain at least a 25% interest in the transferee for 3 years after the transfer.

Key amendments to Taxation Administration Act 1996 (NSW)

1. Penalty tax – The penalty tax has doubled from 25% to 50% for a tax default by a “significant global entity” as defined in the Income Tax Assessment Act 1997 (Cth).

Significant global entity – Global parent entity whose annual consolidated global income is $1 billion or more.

2. Anti-avoidance provisions – This measure expands current rules which are aimed only at deterring “artificial, blatant or contrived” schemes. New provisions are aimed at deterring all schemes to avoid tax liability. Broader application of provisions will apply based on:

  • Application to other state taxes (in addition to stamp duty).

  • Promotion of tax avoidance scheme prohibited (where person markets the scheme or otherwise encourages the growth of the scheme or interest in it). Importantly, “promotion” does not occur if a person merely provides advice about the scheme or distributes information or material about the scheme prepared by another person.

    Note: Unlike the Commonwealth Tax Administration Act 1956 where the promotor penalty regime sits outside the general anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936 (Cth), the NSW promotor penalty regime sits within the anti-avoidance provisions and targets promotors of tax avoidance schemes.

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Should any of these amendments potentially affect you or you would like assistance with appreciating how these changes affect your circumstance, please feel free to contact our state taxes specialist team at:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au

Phil Broderick