What you need to know

This Bulletin outlines recent Australian stamp duty developments which may affect your business, including updates on duty, legislation, revenue office developments and case law.

State and Territory Budgets

• On 12 May 2016, the WA Budget for 2016-17 was handed down with no changes to stamp duty.
• On 24 May 2016, the NT Budget for 2016-17 was handed down. A First Home Owners Discount was introduced from the date of the budget.
• On 26 May 2016, the Tasmanian Budget for 2016-17 was handed down. The Budget contained the following key stamp duty measures: (a) An exemption for corporate reconstructions and corporate consolidations will be introduced with the aim of bringing Tasmania into line with other jurisdictions. (b) The proposed reduction in duty on compulsory third party motor vehicle insurance premiums from 10% to 8% has been postponed indefinitely. Until the Duties Act 2001 (TAS) is amended, Tasmania will remain the sole Australian jurisdiction without a legislative exemption from duty for intra-group transactions.
• On 7 June 2016, the ACT Budget for 2016-17 was handed down. Effective 8 June 2016, residential and commercial conveyance duty has decreased; the flat rate on transactions of $1,455,000 and over has reduced from 5.17% to 5.09%. The Government reaffirmed its commitment to begin Stage 2 of the tax reform plan and reduce conveyance duty in the 2017-18 Budget.
• On 14 June 2016, the QLD Budget for 2016-17 was handed down. From 1 October 2016, a 3% transfer duty surcharge is to be applied to foreign purchasers who directly or indirectly acquire residential property in Queensland. The Treasurer also announced $10 million in revenue over three years will be invested to better secure the integrity of the State’s revenue base as part of the Government's crackdown on state tax avoidance. The amendments to the Duties Act 2001 are discussed below.
• On 21 June 2016, the NSW Budget for 2016-17 was handed down. The Government introduced a stamp duty surcharge of 4% on the direct or indirect purchase of residential real estate by foreign purchasers (commencing 21 June 2016) and a land tax surcharge of 0.75% on residential real estate owned by foreign persons (commencing in the 2017 land tax year). The amendments to the Duties Act 1997 are discussed below.
• On 7 July 2016, the South Australian Budget was handed down. The Government announced an extension to the stamp duty concession for off-the-plan purchases of apartments to 30 June 2017. The Statutes Amendment (Budget 2016) Bill 2016 (SA) contains the new and previously announced stamp duty measures.

Legislative Update

State Revenue Legislation Amendment Act 2016 (NSW)

The State Revenue Legislation Amendment Act 2016 (NSW) received assent on 11 May 2016. The Act, among other things, amended the Duties Act 1997 (NSW) to:

• extend the operation of the corporate consolidation exemption by providing for a reduction of the duty chargeable on an agreement for the sale or transfer of securities, if the transfer to which the agreement applies is a corporate consolidation transaction; and
• extend the operation of the corporate reconstruction exemption to transactions between the trustee of a unit trust and a member of the same corporate group as the unit trust, and treat a custodian of the trustee of a unit trust that is a managed investment scheme as if it were the trustee of the managed investment scheme.

Duties and Other Legislation Amendment Act 2016 (QLD)

The Duties and Other Legislation Amendment Act 2016 (QLD), which received assent on 27 June 2016, introduces an Additional Foreign Acquirer Duty (AFAD) of 3% on direct acquisitions by foreign purchasers of residential land in Queensland, or indirect acquisitions through the relevant acquisition of an interest in a company or the acquisition of a trust or partnership interest. AFAD is calculated on the basis of the foreign person’s interest in AFAD residential land. AFAD will apply from 1 October 2016.

AFAD residential land is land in Queensland that is or will be solely or primarily used for residential purposes, and one of the following apply:

a) on the land there is, or will be constructed, a building designed or approved by a local government for human habitation by a single family unit;

b) on the land there is a building that a person will refurbish, renovate or extend so it becomes a building described in paragraph a;

c) the land is a lot on which there is a building or a part of a building that, for the separate area the lot comprises, is designed or approved by a local government for human habitation by a single family unit;

d) the land will be a lot on which there is a building or a part of a building that, for the separate area the lot comprises, is designed or approved by a local government for human habitation by a single family unit;

e) the land is a lot on which there will be a building or a part of a building that, for the separate area the lot comprises, is designed or approved by a local government for human habitation by a single family unit;

f) a person is undertaking, or will undertake, development of the land so it becomes land described in the above paragraphs.

A foreign person includes:

• a foreign individual – an individual other than an Australian citizen or a permanent resident;
• a foreign corporation – a corporation incorporated outside Australia or a corporation in which a controlling interest is held by foreign persons or related persons. A person has a controlling interest if the person is in a position to control at least 50% of the voting power or potential voting power in a corporation, or has an interest in at least 50% of the issued shares in the corporation; and
• the trustee of a foreign trust – a trust in which at least 50% of the trust interests are held by a foreign person or related persons.

If an acquirer is not a foreign corporation or foreign trust at the time of acquisition, but becomes a foreign person within three years, the foreign person has an obligation to notify the Commissioner. The duty payable on the transaction must be reassessed to impose AFAD as if the acquirer was a foreign person at the time the duty liability on the transaction arose.

State Taxation and Other Acts Amendment Act 2016 (VIC)

The State Taxation and Other Acts Amendment Act 2016 (VIC) received assent on 28 June 2016. Among other things, the Act:

• increased the stamp duty surcharge rate for transfers of residential property to foreign purchasers from 3% to 7%;
• increased the absentee owner land tax surcharge from 0.75% to 1.5%; and
• amended the definition of residential property to exclude commercial residential property such as hotels, motels, student accommodation or retirement villages.

The changes are effective from 1 July 2016.

State Revenue Legislation Amendment (Budget Measures) Act 2016 (NSW)

The State Revenue Legislation Amendment (Budget Measures) Act 2016 (NSW) received assent on 28 June 2016. The Act imposes two new surcharges on foreigners.

Foreign Purchaser Duty Surcharge

With effective from 21 July 2016, foreign persons will be subject to an additional 4% surcharge duty on direct acquisitions by foreign purchasers of residential land in New South Wales, or indirect acquisitions through the relevant acquisition of an interest in a company or unit trust.

Residential land includes:

1. a parcel of land on which there are one or more dwellings, or a parcel of land on which there is a building or buildings under construction that, when completed, will constitute one or more dwellings;
2. a strata lot, if lawfully occupied or suitable for lawful occupation as a separate dwelling; and
3. a parcel of vacant land (including any land that the Chief Commissioner is satisfied is substantially vacant) that is zoned or otherwise designated for use under an environmental planning instrument for residential purposes or principally for residential purposes.

A foreign person is defined by reference to the Foreign Acquisitions and Takeovers Act 1975 (Cth) and will include:

1. an individual not ordinarily resident in Australia, being an individual who has lawfully been in Australia during 200 or more days in the preceding 12 months, whose presence is not subject to a time limitation;
2. a corporation or trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest of at least 20%; or
3. a corporation or trustee of a trust in which two or more persons, each of which is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest of at least 40%.

Australian citizens and New Zealand citizens holding a special category visa are excluded from the meaning of foreign persons.

Foreign purchasers are not entitled to the 12 month duty deferral concessions for off-the-plan purchases of residential property, the First Home Owners Grant or the NSW Builders Bonus.

Land Tax Surcharge

From 1 January 2017, foreign persons will be subject to land tax surcharge of 0.75%. The meaning of foreign person will be the same as in the Duties Act. Foreign persons will no longer be provided with a tax-free threshold for the land tax surcharge.

Statutes Amendment (Budget 2016) Bill 2016 (SA)

The Statutes Amendment (Budget 2016) Bill 2016 (SA) was introduced into the SA Parliament on 7 July 2016. The Bill contains a number of amendments to the Stamp Duties Act 1923 (the SDA) to implement the measures announced in the SA Budget. The stamp duty amendments will take effect from 1 July 2016, except for the off-the-plan concession which will take effect from the date of assent. The amendments to the SDA will:

1. remove duty on transactions involving goods located in SA - the conveyance of goods as part of an arrangement involving a dutiable land transaction, and the acquisition of an interest in a company or trust which is subject to landholder duty, and the company or trust holds goods in SA;
2. make clear that where a purchaser acquires property from two or more independent arm’s length vendors, the value of the properties will not be aggregated to determine the total stamp duty liability;
3. provide an exemption for the conveyance of land to the trustees of a body established wholly for charitable or religious purposes. The exemption in section 71(5)(j) of the SDA currently exempts only a transfer to a body established wholly for charitable or religious purposes;
4. give effect to the one-third reduction in duty applicable to non-residential, non-primary production real property transfers announced by the Government on 7 December 2015. This will replace the ex gratia scheme currently in place; and
5. extend the expiry date for the stamp duty concession for off-the-plan purchases of apartments to 30 June 2017, and extend the application of the concession to an eligible off-the-plan purchase of an apartment anywhere in the State, provided the agreement is entered into between 20 June 2016 and to 30 June 2017.

Duties Developments

NSW duties abolished

On and from 1 July 2016, New South Wales abolished the following duties:

• Marketable securities duty: from 1 July 2016, no jurisdiction in Australia will impose share transfer duty on transfers of shares or units (whether quoted or non-quoted). Landholder duty will continue to apply to the transfer of interests in entities which have landholdings.
• Duty on business assets: from 1 July 2016, business assets (eg goodwill and intellectual property connected with NSW) will cease to be dutiable property. Duty will continue to apply to the transfer of certain business assets in QLD, WA and NT. Transfers of land and interests in land (certain leasehold interests and fixtures) and goods (in certain circumstances) remain subject to duty in all States and Territories.
• Mortgage duty: this means that from 1 July 2016, no jurisdiction in Australia will impose mortgage duty.

Revenue Office Developments

WA Commissioner's Practice DA 41.0

On 27 May 2016, the WA Office of State Revenue issued Commissioner's Practice DA 41.0 which explains the factors the Commissioner will consider when determining the extent of a landholder’s interest in a discretionary trust under section 158 of the Duties Act 2008 (WA) (the WA Duties Act).

Under the WA Duties Act, a potential beneficiary of a discretionary trust is taken to have a 100% interest in the discretionary trust and the assets of that trust. However, the Commissioner may determine the beneficiary’s interest to be some other percentage, or to be nil.

The Commissioner will usually exercise his discretion to reduce an entity’s interest in a discretionary trust if satisfied that:

1. the entity has not benefited and is unlikely to benefit from the trust;
2. neither the main entity nor any linked entity controls the trust; and
3. the acquisition of the interest in the landholder does not and will not result in a change in beneficial ownership or control of the discretionary trust property.

The Practice Statement provides a number of examples illustrating the application of the Commissioner's discretion.

QLD Public Ruling DA012.3.1

On 23 June 2016, the Queensland Commissioner of State Revenue issued Public Ruling DA012.3.1 on the sale of retirement village businesses and obligations under section 71 of the Retirement Villages Act 1999 (QLD) to pay exit entitlements to ongoing residents. The purpose of the ruling is to clarify the duty treatment of certain liabilities assumed by a purchaser of a retirement village.

The public ruling confirms that where section 71 of the Retirement Villages Act 1999 (QLD) imposes an obligation on the purchaser of a retirement village business to repay liabilities to outgoing residents, the amount of these liabilities (that is, the exit entitlements under the residence contracts) is not considered to be assumed under the transaction for the purposes of section 12(1)(a) of the Duties Act 2001 (QLD) and is not included in the consideration. This will be the case even if the contract includes an obligation on the part of the purchaser to pay the amount of those liabilities.

WA Revenue Ruling DA 20.0

On 30 June 2016, the WA Office of State Revenue issued Revenue Ruling DA 20.0 outlining the Commissioner's view on when a partnership is considered to hold land for the purposes of the partnership acquisition provisions in the Duties Act 2008 (WA). The ruling applies to dutiable transactions executed on or after 30 June 2016.

Under regulation 4(1)(g) of the Duties Regulations 2008 (QLD), a partnership acquisition is not dutiable where:

1. the partnership holds no land in Western Australia, other than a lease or leases having nominal value; and
2. the partnership holds no indirect interest in land in Western Australia, other than a lease or leases having nominal value.

The Commissioner states that a commercial lease will generally have nominal value where:

1. there is no premium provided for the grant of the initial lease;
2. the lease has an initial term of less than 20 years, excluding any options; and
3. the lease is between parties dealing at arm’s length.

Where a premium is paid for the grant of the lease, the partnership acquisition is not an excluded transaction. The value of a leasehold interest will generally be considered to be the value of the premium paid unless evidence is provided to support that a lesser value applies.

The Commissioner also states that a partnership will be treated as holding a direct or indirect interest in land where the partnership or a linked entity has an entitlement to tenant’s fixtures. The Commissioner considers that there is judicial support for the view that the right of a tenant to remove tenant's fixture amounts to an equitable interest in land. As the tenant's fixtures are an interest in the land any partnership acquisitions are subject to duty.

Case Law Developments

Perizon Nominees Pty Ltd v Chief Commissioner of State Revenue [2016] NSWCATAD 84

On 5 May 2016, the NSW Civil and Administrative Tribunal held in Perizon Nominees Pty Ltd v Chief Commissioner of State Revenue [2016] NSWCATAD 84 that the Taxpayer, as the transferee, was not eligible for the concession under section 18(3) of the Duties Act 1997 (NSW) for nominal duty to apply to a transfer of land as the Taxpayer was incorporated after the contract was entered into.

Facts

A contract for sale of a property located in Vaucluse, NSW was executed by Angela Perry as purchaser on 26 April 2012. Mrs Perry subsequently decided that the purchase should be completed by the trustee of a family trust. The parties agreed that the transfer would be made to Perizon Nominees Pty Ltd (Perizon), a company incorporated on 13 June 2012 and appointed as the trustee of the Perry Family Trust No.2.

The Chief Commissioner stamped the contract with ad valorem duty of $112,540 and the transfer with duty of $10 under section 18(3) of the Duties Act. Following a review of the transfer, the Chief Commissioner re-assessed the transfer to ad valorem duty of $121,102 on the basis that section 18(3) did not apply as the transfer was not made to an entity which was related to the purchaser at the time the contract was entered into.

Procedural issues

Perizon was not represented at the hearing before the NSWCATAD. The Chief Commissioner preferred that the Tribunal heard the matter on its merits rather than dismissing proceedings under section 55 of the Civil and Administrative Tribunal Act 2013 (NSW) so that finality would be achieved.

The Tribunal considered that it should adjourn the hearing and decide the matter on the papers rather than affording only the Chief Commissioner the opportunity to make oral submissions. The Tribunal decided that it would not be prudent to hear the matter ex parte as the NSW Civil and Administrative Tribunal Act 2013 does not specifically empower a tribunal to hear a matter ex parte if one party fails to appear.

Decision

The Tribunal found that section 18(3) could not apply to the transfer as the contract was executed before Perizon was incorporated. As such, the purchaser, Mrs Perry could not have been related to Perizon at the time the contract was executed.

Further, even if Perizon had been in existence at that time, the evidence indicated that it was intended to acquire the property as trustee of the Perry Family Trust No.2. The definition of "related persons" in the Duties Act 1997 (NSW) required that Mrs Perry be a beneficiary of the trust of which the Perizon was trustee in order for Mrs Perry and Perizon to be related persons. Since the trust was established on 23 July 2012, they could not have been related at the time of the contract.

The Tribunal noted that the result was onerous for the purchaser as it resulted in two rounds of duty. However, considerations of harshness or unfairness have little role to play in construing revenue legislation. Further, the possibility that the purchaser may have had a claim in relation to erroneous legal advice could not affect the statutory responsibility of the Chief Commissioner to collect revenue.

The Tribunal proceeded on the assumption that Perizon would, if represented at the hearing, have applied to amend the application to identify the original notice of assessment rather than the objection decision as the decision under review by the Tribunal. The Tribunal noted that a decision that is reviewable under section 96 of the Tax Administration Act 1996 (NSW) is the original decision whereby an assessment is issued to a taxpayer, not a decision in response to an objection to the assessment.

Michaelides & Anor v Commissioner of State Revenue [2016] VSC 256

On 20 May 2016, in Michaelides & Anor v Commissioner of State Revenue [2016] VSC 256, the Victorian Supreme Court refused leave for appeal of the Victorian Civil and Administrative Tribunal decision. The decision held that the exemption under section 33 of the Duties Act 2000 (VIC) did not apply and a new trust was settled as the transfer of property was not solely because of the change of trustee.

Facts and case history

On 29 January 2009, Mr O'Malley & his wife purchased property at 19 Norwood St, Sandringham (the property) for $1.25 million. Mr O'Malley decided to develop the property with his friend Mr Michaelides through a company acting as trustee for a partnership. On 1 May 2009, Saint Swan Pty Ltd (Saint Swan) was incorporated with Mr O'Malley and Mr Michaelides (the taxpayers) as directors and shareholders. Saint Swan acted as the trustee for the partnership. On 27 May 2009, the property was transferred to Saint Swan for $1.25 million and development was completed in late 2011.

On 24 January 2012, Saint Swan transferred the property to the taxpayers as tenants in common (the disputed transfer). On 3 September 2012, the property was subdivided and the taxpayers, as transferors, transferred Lot 1 to Mr Michaelides and Lot 2 to Mr O'Malley.

The taxpayers relied on the exemption under section 33 of the Duties Act 2000 (VIC) on the basis that the transfer was made in order to vest property due to change in trustee.

The Victorian Civil and Administrative Tribunal held (as discussed in our May 2015 Bulletin) that the transfer was not exempt. The Tribunal held that a new trust was constituted and that taxpayers did not receive the property as joint trustees and there was a dissolution of their partnership. It found the nature of the trust property had changed from being an undivided interest under Saint Swan to distinguishable interests as tenants in common after the disputed transfer.

On appeal to the Supreme Court, the taxpayers appealed on the basis that the Tribunal erred in holding that the taxpayers did not hold property on the same trust as Saint Swan.

Decision

The Supreme Court denied the appeal and upheld the Tribunal's ruling. The decision was made on two grounds. First, it held that the taxpayers did not discharge their onus of proof under section 33(3) that the transfer was "solely…because of the retirement of a trustee or appointment of a new trustee, or other change in trustees". The Court relied on a statutory declaration by Mr O'Malley which indicated the completion of the property development was a reason for the transfer. It was found to be part of a process that administered the subdivision of the property into two lots, one lot transferred to each partner, ie a realisation of their interests.

Second, when the taxpayers received the property as tenants in common, the nature of the trust property had altered, regardless of whether the taxpayers were acting as joint trustees. The Court emphasised that tenants in common had separate and individual title over the land. This is in contrast to land held in an undivided share, ie joint tenancy, which is characterised by the operation of survivorship; where the estate in the fee simple vests with the last surviving owner. The Court noted that in absence of a trust deed permitting alteration to trust property, the transfer changed the legal interest of Saint Swan and created a new trust.

Commissioner of State Revenue v ACN 005 057 349 Pty Limited

On 17 June 2016, in Commissioner of State Revenue v ACN 005 057 349 Pty Ltd [2016] HCATrans 146, the High Court granted the Victorian Commissioner of State Revenue special leave to appeal the decision of the Victorian Court of Appeal which was handed down on 8 December 2015 (and discussed in our October 2015/January 2016 Bulletin).

The case involved a claim for the refund of land tax assessments relating to the period 1990 to 2002 which were overpaid by ACN 005 057 349 Pty Ltd (ACN). From 1988 to 2007, ACN was the registered proprietor of properties described as 2 Ottawa Road, and 65 Albany Road, Toorak and paid assessments of land tax in respect of the properties.

In 2012, the Commissioner informed ACN that the land tax liability for 2 Ottawa Road was based on an erroneous valuation which had included both the landholding of 2 Ottawa Road and the landholding of 65 Albany Road ie 65 Albany Road was a duplicate property in the assessments.

ACN received refunds from the Commissioner for land tax overpaid from 2006 to 2011. ACN applied to the Treasurer for ex-gratia relief and received an ex gratia refund in respect of the years 2003 to 2005.

In 2013, the Commissioner advised that he would not issue amended assessments under section 19 of the Land Tax Act 1958 (VIC) (Land Tax Act) for the years from 1990 to 2002 for the reason that a limitation period would preclude ACN from successfully recovering the excess amount.

The Victorian Court of Appeal held that the Commissioner had the power to amend the assessments under section 19 of the Land Tax Act, which he had a duty to exercise. The refusal to amend the assessments was conscious maladministration by the Commissioner.

Application for special leave

The Commissioner contended that section 19 was discretionary and a permissive power; that the Commissioner had the discretion to issue an amendment but did not have a duty. Further, it was submitted that section 19 was not construed by the Court of Appeal in the context of the legislative framework of objection provisions and appeal rights and that the payments, as made under assessments, were subject to the limitation period in section 90AA of the Land Tax Act.

The Commissioner also contended that the matter raised issues of public importance as the Court of Appeal had ignored the fundamental distinction between the taxpayer's substantive liability for tax as a matter for the objection process, and the tax debt created when the assessment is issued. As such there was no operative mistake to which restitutionary principles would apply since the taxpayer was making payments to discharge a lawful obligation (ie the statutory tax liability that arose by the assessment).

A further error made by the Court of Appeal was said to be the conclusion that ACN had made the payments of the assessed amounts under a mistaken belief that it was legally obliged to do so, and that belief founded ACN’s claim for restitution at common law (in reliance on the High Court decision in Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1994) 182 CLR 51).

The High Court was concerned with the wide construction by the Court of Appeal of the reassessment power in section 19 of the Land Tax Act, and whether it would generally permit a taxpayer who discovers errors in an assessment to obtain a refund, notwithstanding the statutory time limits for objections.

The High Court noted that the Court of Appeal decision could have broad ramifications with respect to the doctrine of restitution. On this point, Nettle J observed that there were "prima facie remarkable restitutionary propositions" in the Court of Appeal's judgment.