NSW stamp duty: possible changes for SMSFs in 2014

The NSW Government recently introduced a bill to amend SMSF stamp duty concessions for:

  • transfers by SMSF members to SMSF trustees; and
  • declarations of custody trust in relation to limited recourse borrowing arrangements.

The State Revenue Legislation Further Amendment Bill 2014 (Bill) is currently progressing through the Legislative Assembly of the NSW Parliament.

If passed, the Bill will increase the concessional duty payable by SMSFs.

This article summarises the proposed changes relevant to SMSFs.

 

Overview

The Bill was introduced into Parliament on 29 May 2014.

The Bill is part of the NSW Government's ongoing program of maintaining legislation governing taxes administered by the Office of State Revenue, and is expressly targeted towards protecting NSW's tax revenue.

What does the Bill do?

The Bill contains amendments to key NSW state revenue laws — being:

  • changes to the Duties Act 1997 (NSW) (Duties Act) to:
    • clarify the duty payable on transactions involving SMSFs;
    • exempt some transfers of heavy vehicle trailers from registration duty; and
    • target avoidance practices by imposing duty on transactions involving options to purchase land in NSW and the novation of agreements for leases of land in NSW;
  • changes to the Land Tax Management Act 1956 (NSW) to change the rules for the grouping of companies under that Act; and
  • changes to payroll tax laws.[1]

This article only deals with the changes to the Duties Act relevant to SMSFs.

You can read the full Bill here.

How does the Bill affect SMSFs?

Ordinarily, both a transfer of 'dutiable property' and a declaration of trust over 'dutiable property' attract stamp duty.[2] 'Dutiable property' in NSW includes land, shares in unlisted companies and options to purchase land.[3]

SMSFs are entitled to concessions which allow them to pay a concessional fixed fee (rather than the full amount) in some circumstances.

The Bill proposes to change the concessional fixed fee amounts payable on transfers of dutiable property and declarations of custody trust by an SMSF, and the circumstances in which they are chargeable.

First change: transfers from SMSF members to SMSF trustees

Current law[4] Proposed new law Effects of change

Duty of $50.00 is chargeable on a transfer of dutiable property from a member of an SMSF to the trustee of a SMSF if:

  • the transferor is the only member of the SMSF, or the property is to be held by the trustee solely for the transferor; and
  • the property is to be used solely for the purpose of providing a retirement benefit to the transferor.

Duty of $500.00 is chargeable on a transfer of dutiable property from a member of an SMSF to the trustee or custodian of an SMSF if:

  • there are no other members of the SMSF other than the transferor, or the property is segregated (see below) from other fund property; and
  • the property is to be used solely for the purpose of providing a retirement benefit to the member or members transferring the property; and
  • the property is to be used for the benefit of those members transferring the property in the same proportions as it was held by them before the transfer.
  • A 10-fold increase in the concessional duty amount.
  • Clarification that the concession can apply when the transfer is made by more than one member.
  • Inclusion of express obligation to 'segregate' property if transferor(s) are not the only members of the SMSF.

Dutiable property is 'segregated' if:

  • it is held specifically for the benefit of the member or members transferring the dutiable property;
  • it cannot be pooled with property held for any other member of the SMSF besides those wishing to transfer; and
  • no other member of the SMSF, other than those transferring, can obtain an interest in the property (or the proceeds of the sale of the property).

Second change: declarations of custody trust

Current law[5] Proposed new law Effects of change

NSW stamp duty law does not currently expressly deal with declarations of custody trust in relation to limited recourse borrowing arrangements.

The Duties Act contains a concessional duty charge of $50.00 for declarations of trust made by an 'apparent purchaser' of dutiable property vested in the 'apparent purchaser' upon trust for the 'real purchaser' who provided the money for the purchase of the dutiable property.

Duty of $500.00 is payable on a declaration of trust by a custodian of an SMSF trustee in which dutiable property is held if:

  • the declaration of trust names the SMSF; and
  • either duty or a concessional duty amount has been paid on the acquisition of the property by the custodian or SMSF trustee; and
  • consideration for the acquisition of dutiable property will be provided by the SMSF trustee.
  • Concessional duty amount of $500.00 for all SMSF trust trusts.
  • Inclusion of new provision applies only in relation to declarations of custody trust for SMSF trustees.
  • Removal of difficulties faced by some SMSFs in relying on the 'apparent purchaser' concession involved in establishing that the SMSF trustee provided the purchase monies in situations where funds are provided by the vendor member of the fund as a contribution.Inclusion of express obligation to 'segregate' property if transferor(s) are not the only members of the SMSF.

What do SMSF trustees and members need to be aware of?

The Bill is not yet law, so the changes do not yet apply.

If the Bill becomes law, SMSF trustees and members will need to be conscious of the new requirements for accessing the stamp duty concessions. If those requirements are not satisfied, then the concession will not apply and the full amount of duty will be chargeable.

For transfers of dutiable property by SMSF members into their SMSF, trustees will need to ensure that:

  • if the transferor(s) are not the only members of the SMSF — the property is 'segregated' from the other members; and
  • if 2 or more members transfer the property — the SMSF trustee applies the benefit of the property in the same proportions as it was held by the transferors before the transfer (for example, 50:50 for land held by 2 members as joint tenants).

For declarations of custody trust (such as under limited recourse borrowing arrangements), trustees will need to ensure that:

  • the declaration of trust names the SMSF; and
  • they provide all money for the acquisition of the 'dutiable property' by the custodian.

Both of these requirements for declarations of custody trust are already provided for in the Cleardocs SMSF Borrowing products.

What is the status of the Bill?

The Bill is awaiting approval by the Legislative Assembly, and if passed, will make its way through the Legislative Council.

You can monitor the progress of the Bill here.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the General Superannuation group.

More information on related topics

You can read articles on a wide range of SMSF topics.

Order SMSF related document packages


[1] The Payroll Tax Act 2007 (NSW) and the Payroll Tax Rebate Scheme (Jobs Action Plan) Act 2011 (NSW).

[2] Section 12 of the Duties Act 1997 (NSW).

[3] Section 11 of the Duties Act 1997 (NSW).

[4] Section 62A(1) of the Duties Act 1997 (NSW).

[5] Sections 8(1)(b)(ii) and 55 of the Duties Act 1997 (NSW).