Landholder - charge on the land
Ruling number
|
DUT 051 |
Tax/benefit
|
Duties
|
Type
| Landholder |
Date issued
| August 2021 |
Issued by
| Scott Johnston Chief Commissioner of State Revenue
|
Effective from
| 24 June 2020
|
Effective to
|
-
|
Status
| Current |
- This Ruling sets out how the Chief Commissioner administers section 154 of the Duties Act 1997 (“the Act”). It explains that the landholder will be jointly and severally liable for the landholder duty payable when a person makes a relevant acquisition and how the liability of the landholder is a charge on the land for which a caveat can be registered.
Background
- From 24 June 2020, if any landholder duty (including interest or penalty tax) is payable, there will be a charge on the land of the landholder for which a caveat can be registered.
Section 154 of the Act extends liability for landholder duty payable by a person when the person acquires an interest in a landholder so that the landholder and the acquirer will be jointly and severally liable to pay the duty. This applies to relevant landholder acquisitions made on or after 24 June 2020.
- The following persons are jointly and severally liable to pay duty:
- the person who makes the relevant acquisition (“acquirer”);
- the landholder or, if the landholder is a unit trust scheme, the trustee of the landholder;
- if the relevant acquisition results from an aggregation of the interests of the person referred to in paragraph (a) and other persons—each of those other persons.
- Any liability of a landholder, or the trustee of a landholder, to pay duty chargeable (together with any interest or penalty tax payable) is a charge on the landholdings of the landholder or trustee (this includes constructive ownership of landholdings through linked entities and discretionary trusts).
- A charge gives the Chief Commissioner an interest in the land and, accordingly, the Chief Commissioner may lodge a caveat in respect of the land under the Real Property Act 1900 to protect that interest and the revenue of the State.
Example
On 1 July 2020 Peter acquired all the issued shares in the Company XYZ Pty Ltd. XYZ Pty Ltd does not own any land in NSW, however, it owns all the issued shares in ABC Pty Ltd that owns land in NSW. Company XYZ Pty Ltd is also a beneficiary of a discretionary trust, Joe Peggs Family Trust that owns land in NSW. The total unencumbered value of the landholdings by ABC Pty Ltd and the Joe Peggs Family Trust is more than $2 million. Land holder duty was payable on the acquisition of shares in XYZ Pty Ltd based on the total value of landholdings and goods in NSW (as defined in section 163K of the Act) of ABC Pty Ltd and Joe Bloggs Family Trust.
Peter and XYZ Pty Ltd are both jointly and severally liable to the duty payable and pursuant to Section 154(3) the landholder duty payable is a charge on its landholdings (i.e. the land owned by ABC Pty Ltd and by the trustee of the Joe Peggs Family Trust) and the Chief Commissioner may lodge caveats in respect of such landholdings.
Ruling
Charge on the Landholdings
- If landholder duty, including interest and/or penalty tax is payable, this liability is a charge on the landholdings of the landholder and a caveat can be registered by the Chief Commissioner on the landholdings of the landholder. Where this occurs, the caveat will be registered on the title of the property or properties of the landholder with Land Registry Services (“LRS”) to secure the debt under the Real Property Act 1900.
- Although the acquirer acquires an “interest” in the land (for landholder duty purposes – section 154(4)), the landholdings of the landholder remain in the ownership of the landholder and/or its linked entities and/or discretionary trusts and the landholder, or, in the case of a unit trust scheme, the trustee is jointly responsible for paying any liability of the acquirer of the landholder duty.
- If a landholder or trustee of the landholder pays landholder duty that is not paid by the acquirer or other relevant persons, the landholder will be entitled to recover that duty (together with any penalty and/or interest paid by the landholder) as a debt from the person or persons jointly and severally liable to pay the duty in accordance with section 154(2) of the Act.
- If the acquirer pays landholder duty that was payable by the acquirer and the other person/s, the acquirer will be entitled to recover the proportionate amount of that duty (together with a proportionate amount of any interest and /or penalty paid by the acquirer) as a debt from each of the other persons who are jointly and severally liable to pay the debt except not the landholder.
- In some cases, a landholder could be entitled to a number of landholdings in NSW. Section 154 of the Act creates a charge on all landholdings of the landholder and authorises the Chief Commissioner to lodge a caveat on the title of all the landholdings of the landholder, regardless of when any particular land holding was acquired by the landholder.
- Where the person jointly liable for landholder duty is a unit trust scheme (“Target UTS”), it is only the landholdings of the Target UTS that will be subject to any charge for that landholder duty. Landholdings to which the trustee is entitled beneficially or to which the trustee is entitled as a trustee of another unit trust scheme that are not landholdings of the Target UTS will not be subject to any charge for that landholder duty.
Example
BEST Pty Ltd owns two shopping centres in New South Wales. ABS Pty Ltd acquired 70% of the issued shares in BEST Pty Ltd on the 17 January 2021 and was liable to pay landholder duty on 70% of the value of the two properties including any items fixed to the land and goods in NSW ( as defined in section 163K of the Act).
BEST Pty Ltd acquired another shopping centre on the 28 of February 2021. This property was not part of the properties owned by the landholder at the time of the acquisition and was not included in the calculation of landholder duty.
As at 6 June 2021, landholder duty (including the interest) was not paid. The Chief Commissioner can lodge a caveat on the title of all three properties of the landholder.
Administrative Practice
- The intention of the legislation is to protect the interest and the revenue of the State of New South Wales especially when there has been non-compliance. As such, the registration of caveats pursuant to section 154 is not expected to be a common occurrence.
- The following is an outline of the general administrative practice of the Chief Commissioner in respect to landholder duty, although there may be grounds for exception in particular circumstances:
- When a liability to landholder duty arises, an initial notice of assessment (“NOA”) will be issued only to the acquirer or their tax representative. If landholder duty is not paid, the Chief Commissioner will issue a separate joint and several liability notice of assessment (“JSNOA”) to each of the liable parties.
- If payment is still not made, the Chief Commissioner will send a Legal Notice (Notice of Intended Legal Action) to each of the liable parties. The notice will outline the outstanding debt, including interest and penalty and the consequences of not paying the debt.
- The Chief Commissioner will generally only lodge a caveat on title where there has been a tax default, however a caveat may be lodged at any time where the Chief Commissioner considers it appropriate to protect the revenue of the State.
Withdrawal of a caveat
- Where a caveat has been lodged by the Chief Commissioner on the title of any landholding of a landholder and the liability to landholder duty (including all interest and/or penalty tax) has been paid, the Chief Commissioner will withdraw the caveat.
Example
Caveats were lodged by the Chief Commissioner on the three properties owned by RECO Pty Ltd to secure the debt.
The total debt including interest and penalty was $104,000.00. PET Pty Ltd who acquired 80% of the shares RECO Pty Ltd (and one of the liable parties) pays all of the debt.
As all the outstanding debt is paid, the caveats will be withdrawn.