The Treasury and Revenue Legislation Amendment Bill 2023 (NSW) (Bill) passed on 21 September 2023. The Bill implements the NSW Government’s 2023-24 Budget and makes some big tax changes that you need to be aware of.
Broadly, the Bill tightens the ability to access various exemptions and concessions to land tax and landholder duty. A summary of the key changes are as follows:
- Land Tax – The threshold for principal place of residence exemption increases from 1% to 25%, with a transition period ending 31 December 2025.
- Corporate reconstruction and consolidations – From 1 February 2024, a 10% duty on “corporate reconstruction” and “corporate consolidation” transactions will be introduced.
- Landholder duty – From 1 February 2024:a) the landholder duty ‘trigger’ threshold for private unit trust schemes is reduced from 50% to 20%;
b) that threshold can be increased from 20% to 50% but only for “wholesale unit trusts” that are registered as such. - Concessional duty amounts – from 1 February 2024, certain concessional duty amounts will increase.
Further details of these changes are explained below.
Land tax PPR exemption
Prior to the Bill, in NSW, the Principal Place of Residence (PPR) exemption for land tax purposes was applicable to the whole land if a person, with as little as a 1% interest in the land, uses and occupies the land as their PPR.
The Bill has now introduced a minimum ownership requirement of 25% for the PPR exemption to apply. This means that if, and only if, the collective ownership interests of the land of all persons, who use and occupy the land as their PPR constitutes at least 25% of the land, the land will be entitled to the PPR exemption.
For individuals who already occupy and use the land as their PPR, and collectively have an existing interest in the land that is less than 25%, the PPR exemption will continue to apply until 31 December 2025.
Corporate reconstruction and consolidation relief
Prior to the Bill, there was a 100% exemption for corporate reconstruction and consolidation transactions. These transactions are targeted at internal corporate restructures which result in the same ultimate owners of dutiable property that is held within those structures.
The Bill removes this exemption and instead imposes a 10% duty payable on such transactions from 1 February 2024.
This means that from 1 February 2024, the amount of duty payable on these transactions will be 10% of what the duty would have been if the corporate reconstruction and consolidation relief provisions didn’t apply.
The full exemption will continue to apply in the following circumstances:
- if the transaction occurs before 1 February 2024; or
- if the transaction occurs on or after 1 February 2024, an application for exemption is made on or before 1 April 2024 and the transaction arose from an agreement or arrangement that was entered into before 19 September 2023 (the date the Bill was introduced to NSW Parliament).
It is important to note that multiple transaction steps in a restructure involving the same dutiable property will be subject to the 10% duty for each restructure step. This distinguishes the position in NSW from the current position in Victoria (which only charges the duty once, if the whole series of transactions occurred within 30 days).
Landholder duty for private unit trust schemes
Prior to the Bill, a transaction involving the acquisition of interests in a private unit trust were subject to landholder duty in NSW if:
- the private unit trust has landholdings in NSW with an unencumbered value of $2 million or more; and
- a person makes a “relevant acquisition,” i.e. an acquisition that will result in the person or associated persons holding an aggregated interest amounting to a “significant interest”, being currently at 50%, in the private unit trust.
From 1 February 2024, this “significant interest” threshold for private unit trust schemes will be reduced from 50% to 20%. This, in and of itself, is a significant change and may potentially dampen investor appetitive in property development projects that are structured as unit trusts. That said, there is an opportunity to restore the 50% threshold for “wholesale unit trusts” (see below).
For completeness, from 1 February 2024, the following “significant interest” thresholds will apply:
- Private landholders that are private unit trust schemes: 20% or more;
- Other private landholders: 50% or more; and
- Public landholder (being trust or company): 90% or more.
Further, the threshold for private trusts and companies to be considered “linked entities” for landholder duty purposes is reduced from 50% to 20%. This means that an entity will be deemed to own the land owned by a ‘linked entity’ if that entity holds 20% or more of the ‘linked entity’.
Wholesale unit trust registration
Under the Bill, from 1 February 2025, a private unit trust scheme may apply to be registered as a “wholesale unit trust.”
As a “wholesale unit trust,” the 20% threshold (as described above) is restored back to the original 50% threshold for landholder duty purposes.
The requirements for registration as a wholesale unit trust scheme are:
- the scheme was not established for a particular investor; and
- not less than 80% of the units in the scheme are held by qualified investors; and
- no qualified investor, either alone or together with associated persons, holds 50% or more of the units in the scheme; and
- any additional requirements that the Chief Commissioner may specify.
There is a range of different entities that qualify as a “qualified investor”, which are are generally targeted towards listed entities, widely held entities and certain regulated entities.
If an acquisition in a unit trust scheme took place on or after 1 February 2024 and the unit trust scheme is not registered, the unit trust will be taken to be a registered wholesale unit trust if an application is made before 1 May 2024 and the application is approved.
Additionally, the Chief Commissioner may register a unit trust scheme as an imminent wholesale unit trust scheme if it is satisfied that the unit trust scheme will be a wholesale unit trust scheme within 12 months after the day on which the first units in the scheme are issued to qualified investors. Registered imminent wholesale unit trust schemes will also be entitled to a 50% acquisition threshold for landholder duty.
Wholesale unit registrations last for three (3) years, unless revoked earlier due to disqualifying circumstances. Imminent wholesale unit trust registrations last one (1) year. Penalties can apply if the Commissioner isn’t notified of any such circumstances from the responsible entity prior to a significant interest transaction. Unit trusts can apply to be re-registered at the expiry of the relevant registration period.
Concessional duty increases
The nominal and fixed duty on transactions that attract concessional duty have increased, as follows:
a) Duty on declaration of trusts over unidentified or non-dutiable property has increased from $500 to $750;
b) For various concessions, including changes in trustee concession, duty has increased from $50 to $100;
c) Duty on certain transfers and instruments relating to managed investment schemes has increased from $50 to $500; and
d) The minimum amount of duty chargeable and duty on counterparts and duplicates has increased from $10 to $20.
Key takeaways
Many of these changes come into effect on 1 February 2024. For the land tax PPR exemption, the changes come into immediate effect, but after 31 December 2025 for existing arrangements.
Now is the time for affected individuals, businesses and investors to restructure their existing affairs so that they are not caught, inadvertently or otherwise, from these adverse changes come 1 February 2024 (or 31 December 2025 for PPR exemptions).
To discuss the potential implications of the above changes in more detail, please contact Coleman Greig’s Taxation Law experts on +61 2 9895 9200.
