|Ruling number||DUT 023|
|Date issued||11 December 2001|
|Issued by||Peter Achterstraat|
Chief Commissioner of State Revenue
|Effective from||11 December 2001|
|Effective to||1 July 2016|
Following the introduction of the Water Management Act 2000 and recent changes to revenue law relating to stamp duty, there has been some uncertainty regarding the liability to duty of transactions relating to water rights.
Typical transactions include:
an agreement for the sale of land where the total purchase price includes a water licence and an associated water allocation; and
an agreement for the sale of land where the total purchase price includes shares in an Irrigation Corporation and corresponding water entitlements.
Both land and water licences are dutiable property (see section 11 (1)(a) & (h) of the Duties Act 1997). Shares in an irrigation corporation are also dutiable property (section 11 (1)(d)), but are dutiable at a different rate (section 33).
Water allocations are the quantity of water that may be taken from a water source by the holder of a licence issued under the Water Act 1912 or an access licence issued under the Water Management Act 2000.
Section 20AH (1) of the Water Act (to be succeeded by sections 72 and 73 of the Water Management Act) permits the holder of an licence/access licence to transfer, on a permanent basis, the whole or any part of a water allocation to the holder of another licence/access licence. For the purpose of this ruling, water allocations that are capable of being permanently transferred between licence holders or sold to a new licence holder are not dutiable property.
Conversely, water allocations that are not capable of being transferred on a permanent basis are considered to enhance the value of the licence/access licence to which the allocations are referable. Any transfer of the licence would be dutiable at the general rate on the value of the licence.
A water allocation also includes the entitlement, of a member of an irrigation corporation, to receive a specified quantity of water on an annual basis. These water allocations correspond with the members share ownership, eg. 200 shares entitles the holder to an allocation of 200 megalitre of water.
As these water allocations are not permitted, within the transfer rules of the irrigation corporations, to be permanently transferred independent of the share, it is considered that the value of the water allocation simply enhances the value of the share. Any transfer of the share/entitlement would be dutiable at the share rate on the value of the share enhanced by the value of the water allocation.
Where a transaction includes both dutiable property and nondutiable property, or includes different types of dutiable property each of which is subject to a different rate of duty, it will be necessary to apportion the value or consideration between each type of property. This ruling identifies the manner in which duty will be assessed on the various types of property in transactions relating to water rights.
Where a dutiable transaction between parties at arm’s length includes dutiable and nondutiable property or different types of dutiable property, it has been the Office of State Revenue’s assessing practice to accept at face value the parties’ apportionment of the consideration between the various items of property. However, if there is any reason to suspect that the apportionment does not reflect the market value of any item, the Chief Commissioner can request a valuation of any or all of the items of property being sold. This general practice will continue to apply to transactions relating to water licences, water allocations and shares/entitlements in irrigation corporations.
The value of a water allocation associated with a sale of land is not necessarily the same as the value of a water allocation being transferred independently in the open market. In general, the sale of a water allocation as part of a sale of land will be at a discounted rate compared to a sale of the same volumetric water allocation separate from land.
Therefore, where a transaction is between parties at arm’s length, it is proposed to assess duty in accordance with one of the following methods, provided that the apportionment adequately reflects the discounted value of the water allocation.
Method 1: Apportionment of the purchase price as determined by the parties.
Where the parties apportion the purchase price between the items of property and express the apportionment within the contract for sale and transfer, duty will be assessed on the basis of that apportionment at the appropriate rates.
Consistent with general assessing practice, the Chief Commissioner will require a valuation of the dutiable property (Method 2) in instances where the apportionment appears to result in an inadequate dutiable value for the land and improvements. For example, any apportionment determined by simply deducting from the total purchase price the “going rate” for water allocations on a per megalitre basis is not considered appropriate, as the resulting figure for the value of the land and improvements component may not reflect its true value, taking into account its accessibility to water and any existing irrigation infrastructure.
Method 2: Valuation of the land and improvements.
Where the value of the irrigable land and improvements has been determined by a registered valuer, duty will be assessed at the general rate on that value provided the valuation takes into account the accessibility of water to the land and any existing irrigation infrastructure. A valuation will not be accepted if it has been determined solely by deducting from the total purchase price the value that would be attributed to the water allocation if transferred on the open market as a separate transaction.
Where the contract price includes shares/entitlements in an irrigation corporation, the balance of the purchase price over and above the value of the land and improvements will be assessed at the share rate.
Method 3: Apportionment of the purchase price as determined by the Office of State Revenue.
Where the parties choose not to apportion the purchase price within the document, and wish to avoid the added cost of obtaining a valuation, duty will be assessed on the dutiable value of the land and improvements by applying a base value for water allocations and deducting this amount from the total purchase price.
Where the contract price includes shares/entitlements in an irrigation corporation, the balance of the purchase price over and above the value as determined for the land and improvements will be assessed at the share rate.
At the date of publication of this ruling, the amounts used for calculating the value of water allocations under Method 3 are $300 per megalitre of general security water and $450 per megalitre of high security water.
In the case of groundwater, being a water allocation referable to a bore licence, an apportionment will only be considered if the allocation is transferable within the permanent transfer rules established by the Department of Land and Water Conservation (DLWC). A letter from DLWC confirming this should be submitted with the contract or transfer. The base value to be used for apportionment of transferable groundwater under Method 3 is $100 per megalitre.
The Office of State Revenue monitors sales of water entitlements across New South Wales, and this information will be used when reviewing assessments based on apportionment.