Victoria jumps, NSW says how high? State budget mirrors Victorian position in seeking boost to revenues

New South Wales Treasurer, Daniel Mookhey, has delivered the first Labor budget in the state since 2010. The budget is anticipated to deliver a deficit of $7.8b in the current financial year and projected to improve year on year with surpluses delivered each year thereafter. Achieving these projections would be an impressive feat in a year in which inflation remains a key economic hurdle and the economy has been impacted by a moderate slowdown. So how has the government been able to deliver these rosy forecasts for the years ahead? The answer is in a swathe of new measures set to boost duty revenue for the State.

Two such measures part of the Government’s objective of returning the State to a surplus relate to the removal of the corporate reconstruction and consolidation exemptions and to the landholder acquisition threshold for private unit trust schemes. Both changes reflect similar amendments made in the Victorian context across recent budgets and are expected to drive revenue growth in the State. 

This article will provide a detailed analysis on the two key revenue measures. In particular, financial and tax professionals advising NSW corporate groups or land-rich unit trust structures should familiarise themselves with these changes and ensure they are aware of any flow-on impacts they may have on their clients.   

Corporate reconstruction and consolidation concession

The current total duty exemption for eligible corporate reconstruction and consolidation transactions will be scrapped and replaced with a steep discount to the duty which would otherwise have been payable. The new concessional approach means that, for eligible transactions, a rate of 10% of the ordinary duty will apply.  

This new concessional approach is intended to apply to a corporate reconstruction or consolidation occurring on or after 1 February 2024. However, the current corporate reconstruction exemption will remain available for acquisitions where a section 273F exemption application is lodged on or before 1 April 2024 and the reconstruction arose from an arrangement entered into before 19 September 2023. 

This appears largely to be a case of NSW taking a leaf from Victoria's book: on 1 July 2019, Victoria replaced their corporate reconstruction exemption with a concession resulting in eligible transactions attracting duty at a concessional rate of 10%.  As reflected in Victoria, not only is it a reliable way of the State accumulating additional revenue through the duty charge, but it also necessitates a greater investment of the applicant's time and resourcing in arranging the lodgement of the application with Revenue NSW.  

A point of difference with the Victorian position, however, is the absence of an exemption for restructure transactions that involve more than one restructure step. That is, the NSW budget did not propose to provide exemption to a later step in a single corporate restructure. By comparison, the Victorian position would exempt from further duty any such later step occurring within 30 days of the first eligible restructure step and dealing with the same piece of dutiable property in the overall restructure.

The NSW Government has made the assumption in their Budget Statement paper that the imposition of concessional duty on corporate reconstruction or consolidations will result in increased transfer duty tax in the projected future. However, it is unclear whether these assumptions are based off the same level of reconstructions occurring, or what other assumptions underpin the revenue growth expected to be generated from this change. 

Landholder acquisition threshold reduction for private unit trust schemes

Broadly, landholder duty is levied on acquisitions of ‘significant interests’ in private companies and unit trusts that hold property (directly or indirectly) in NSW with an unencumbered land value of $2m or more. 
Under the new NSW budget measures: 

• the 50% significant threshold will be lowered to 20% for private unit trusts; and 
• the threshold for the tracing of property through ‘linked entities’ of a landholder will also be amended from 50% to 20%. This means that entities in a chain will be considered as ‘linked together’ in instances where one of those entities is entitled (in the event of a distribution of all property of the other entity) to receive 20% or more of the value of the property in the other entity.   

The changes will apply for acquisitions that are completed on or after 1 February 2024 unless they arose from an agreement or arrangement entered before 19 September 2023.

However, there are some instances where the 50% threshold will remain. For instance: 

• the current 50% acquisition threshold for private companies will be unchanged; and
• the 50% acquisition threshold also stays and will apply to wholesale unit trust schemes or imminent wholesale unit trust schemes registered with Revenue NSW. 

What is a wholesale unit trust?

The Duties Act 1997 is being amended to clarify what constitutes a wholesale unit trust or imminent wholesale unit trust scheme. Notably, there is a requirement for 80% or more of the units to be held by ‘qualified investors’. Generally speaking, a qualified investor is someone who is a large, sophisticated investor and invests for others, such as a superannuation fund or listed company. In addition, the Commissioner may register an imminent wholesale unit trust scheme where the Commissioner is satisfied that the 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 a qualified investor.

How different is this approach from Victoria?

Again, many of these introduced changes are largely mirrored in Victorian legislation: 

• on 1 July 2012 Victoria lowered its threshold so that landholder duty would be triggered upon a 20% acquisition; and 
• both States will soon have broadly similar legislation regarding their treatment of ‘wholesale unit trust schemes’ and ‘imminent wholesale unit trust schemes’. 

However, as a point of distinction between the States, a prerequisite for landholder duty to be triggered in NSW is for the landholder (i.e., the unit trust scheme, private or publicly listed company) to hold land with an unencumbered value of $2 million or more, whereas in Victoria the unencumbered value need only be $1 million or more.  

Be ready for the changes

These changes are expected to boost revenue in NSW, with the Government citing additional investment and compliance in Revenue NSW to bring a $225.5m injection via land tax and $87.5m in transfer duty over the next four years. Accordingly, financial and tax professionals need to carefully consider these changes and take note of the clients they service who may be caught under this new tax regime.  

More information from Maddocks

For more information on the implications of the NSW state budget or if you require advice on the consequences this may have on you, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Tax and Structuring team.

You can read earlier ClearLaw articles on a range of topics, such as:

• Tax Agent Disclosure Obligations. What to do when you suspect fraudulent behaviour 
• Crackdown! ATO ramps up pursuit of unpaid taxes
• NSW Supreme Court dismisses existence of trust relationship in Project Development Agreement
   

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