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This webinar will take you through the changes to the legislation, forms and supporting information that will be required, and how to lodge with Revenue NSW.
We will look at a few case study examples and provide links to access further information and professional resources.
In this video we will take you through the 1 February 2024 changes in legislation for Landholder duty in NSW.
Key topics from the event
This is a summary of key points in response to the most popular questions raised in the webinar.
Where Company A does not own any land or goods in its own capacity but it does own 30% of all units in Unit Trust B, the trust is not a “linked entity” of Company A prior to 1 February 2024. However, on and from 1 February 2024, Unit Trust B will be a linked entity of Company A and so Company A will be taken to be a landholder. If a shareholder completes the acquisition of 50% of the shares in Company A on and from 1 February 2024, landholder duty will be payable.
The definition of what constitutes a landholder is not amended. The acquisition of an interest in a company that is not a landholder because it does not hold land with an unencumbered value of $2m or more is not subject to landholder duty. Due to the amendment to the linked entity provision, an entity that is not itself a landholder may become a landholder from 1 February 2024 e.g., because it holds a 30% interest in a landholder that is then considered a linked entity.
The landholdings directly and indirectly held by the target entity are tested against the $2m threshold. It is NOT the value of the interest in the target entity being acquired by a purchasing investor that is tested against the $2m threshold.
The $2m landholding threshold is tested at the target entity level. In this example, landholder duty will still be payable as the unit trust is a landholder pursuant to section 146 of the Duties Act 1997 (NSW) because its landholdings in NSW have a market value of $2m.
On the basis that the transferee is acquiring a 20% interest in the trust, duty will be calculated in accordance with section 155(1) of the Duties Act 1997 (NSW) based on a value of $400,000 i.e., 20% x $2,000,000. This assumes that the trust in the example holds no goods, has no linked entities, is not a beneficiary of a discretionary trust that has land holdings and is not a party to any uncompleted agreement for the transfer of land and/or the acquisition of shares or units in a landholder; See 158 to 161 of the Duties Act 1997 (NSW).
The 20% acquisition threshold applies to acquisitions in private unit trust schemes occurring on or after 1 February 2024. Existing holdings can become subject to landholder duty if a relevant acquisition occurs within 3 years of an earlier acquisition (even if that acquisition was made before 1 February 2024).
By way of an example, if a unitholder already holds a 30% interest in a private unit trust, the introduction of the 20% threshold on 1 February 2024 will not trigger a liability to duty. However, any further acquisition in the trust by the unitholder will be subject to duty and if the 30% interest was acquired within 3 years before such further acquisition, it too will be subject to duty. This liability to duty on acquisitions that occurs within what is called the 'statement period' has not changed.
If Company A acquires the land directly from Company B, then normal transfer duty will apply as per Chapter 2 of the Duties Act 1997 (NSW). Landholder duty only applies where Company A acquires a significant interest i.e., 50% or more in Company B.
Yes, the treatment of incremental acquisitions has not changed where they are made within the 3 year statement period. Whilst the threshold change may result in a smaller future acquisition resulting in a relevant acquisition, the treatment of such transactions has not changed.
For example, a unitholder acquires a 25% interest in a landholding private unit trust scheme on 24 January 2024 but does not pay duty as, at the time, it did not acquire a significant interest in the trust (being an interest of 50% prior to 1 February 2024). The unitholder then acquires a further 5% interest in the trust on 23 February 2024. This later acquisition triggers a liability to duty on the 30% interest held by the unitholder.
By way of explanation, the acquisition of the later 5% interest is subject to duty as, on and from 1 February 2024, the unitholder is taken to already hold a significant interest (being an interest of 20%) in the trust and is acquiring a further interest. This is taken to be a relevant acquisition. Duty is charged on this 5% interest and any other interest acquired in the previous 3 years. Accordingly, the acquisition of the initial 25% interest also becomes subject to duty at this time.
No, the Chief Commissioner would not exercise his discretion under s163H of the Duties Act 1997. The transitional provisions could have but did not provide relief in such circumstances.
For example, if a unitholder acquired an initial interest of 20% in a private unit trust scheme on 1 July 2022, it knew that the interest would not be subject to landholder duty unless it increased its interest in the trust to 50% within a 3-year period. However, on and from 1 February 2024, the change in law makes it clear that any further acquisition in the trust by the unitholder will be subject to duty. Further, if a subsequent acquisition is within 3 years of the initial acquisition, that initial 20% interest will also be subject to landholder duty. The fact that this outcome now occurs once a 20% interest is held rather than the previous 50% would not be grounds for the exercise of the discretion under s163H.
The lodgement of draft documents will not be processed as no landholder duty liability has been triggered. In this regard, should a taxpayer wish to have their landholder duty matter assessed, they will need to lodge executed documents for processing.
Unencumbered value broadly refers to the market value of an asset free from any encumbrance (such as a mortgage).
For the purposes of determining whether an entity is a landholder, the calculation is based on the unencumbered value of the land holdings held by the landholder (whether directly or indirectly through linked entities or discretionary trusts, if applicable). Please refer to sections 146, 158, 158A and 159 of the Duties Act 1997 (NSW).
For the purposes of calculating landholder duty, the unencumbered value of all land holdings and goods held by the landholder (whether directly or indirectly through linked entities or discretionary trusts, if applicable), will need to be determined. Duty will then be calculated in accordance with section 155 of the Duties Act 1997 (NSW).
Yes, if the landholdings of the landholder are comprised of commercial property, then these will be considered as the land holdings of the landholder. Please refer to section 147 of the Duties Act 1997 (NSW).
The Courts have considered an option to renew held by a lessee under an existing lease to give the lessee an interest in land. However, there will be options to lease that may not be considered an interest in land. It will be necessary to consider the documents and rights granted in them on a case-by-case basis.
At a high level, taxpayers can demonstrate this through an agreement and transfer document executed before 1 February 2024 together with updated ownership registers.
Where the relevant acquisition occurs on or after 1 February 2024, the Commissioner will need to be satisfied that the relevant acquisition arose from an arrangement entered into before the introduction date of the Bill for the Treasury and Revenue Legislation Amendment Act 2023 (being 19 September 2023). As to what constitutes an "arrangement" in this context, there is a substantial body of case law which considers this issue and the Chief Commissioner will consider each claim of there being an arrangement, on a case-by-case basis.