Significant NSW Duty Amendments in the Budget to Broaden the Duty Regime

The 2023-24 NSW State Budget released by Treasurer, Daniel Mookhey, on Tuesday, 19 September 2023 contained a number of undesirable, unpleasant surprises for taxpayers in the State.

For taxpayers that are in the process of, or are planning, undertaking corporate reconstruction transactions, the proposed measures could have significant implications. Further, for private unit trust schemes, there are revised measures which will have the effect of bringing more transactions within the ambit of landholder duty in NSW.

what are the proposed amendments?

The key measures included within the proposed amendments included:

Corporate reconstruction exemption

Currently, there is a full duty exemption whereby duty is not chargeable where property or assets are transferred between members of a corporate group.

In the NSW Budget, it was announced that this 100% exemption will be removed and replaced with only a 90% reduction. In other words, a duty liability equivalent to 10% of the duty that would otherwise be payable, will apply going forward.

Significant interest threshold for private unit trusts

Currently, landholder duty has the potential of being applicable on acquisitions of a ‘significant interest’ in a landholder, which is 50% or more for a private landholder (i.e. for both private companies and private unit trusts).

Under the proposed amendments, the significant interest threshold for private unit trusts is being reduced from 50% to 20%.

Corporate reconstruction exemption

Further to the significant interest threshold for private unit trusts changes, the ‘linked entity’ rules will change such that the value of landholdings held by linked entities will need to be included within the landholdings of a landholder where there is a 20% or greater interest in the linked entity (i.e. an increase from the current 50% threshold).

Other amendments

In addition to the above, there are other amendments introduced in the NSW State Budget, for example:

1. There are increases to fixed or nominal duty currently charged in respect of various transactions in NSW;
2. In order for the principal place of residence land tax exemption to apply, there will be a rule requiring all of the persons who use and occupy the land to own at least a 25% interest in the land;
3. The introduction of a new regime for wholesale unit trusts.
   
   

Who does the amendments not apply to?

Corporate reconstruction exemption

For the corporate reconstruction exemption, the 100% exemption will continue to apply to the following transactions:

1. Transactions that occur before 1 February 2024;
2. By way of transitional rules, transactions occurring on or after 1 February 2024 where the transaction arose from an agreement or arrangement entered into before 19 September 2023;
3. Application for exemptions lodged with Revenue NSW on or before 1 April 2024.
   
   

Private unit trusts

The new 20% threshold will not apply to wholesale unit trusts (i.e. whilst there are a number of requirements to meet, this may include some entities where the majority of units in the fund are held by qualified investors, amongst other things).

The 50% threshold for private companies will remain too.