Significant Changes to NSW Stamp Duty Regime

The NSW Government has recently passed the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022, which has substantially increased the range of transactions and dealings that are subject to duty in NSW. This includes charging duty on transactions taken to be a change in beneficial ownership of dutiable property and mere acknowledgments of existing trusts holding dutiable property. Both changes come less than 18 months after the NSW Government announced plans to phase out stamp duty in favour of a broad-based property tax.

Daniel Hui & Tristram Feder, Maddocks Lawyers

The Amending Act

The NSW Parliament recently passed the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (NSW) (Amending Act) in May 2022, amending the Duties Act 1997 (NSW) (Act). Among other things, the Amending Act has significantly broadened the stamp duty base by charging duty on:

  • changes in beneficial ownership of dutiable property; and
  • mere acknowledgements of existing trusts over dutiable property.

These changes take effect from 19 May 2022.

Changes in beneficial ownership

Section 8(1)(b) of the Act lists several types of transactions that are dutiable, such as the sale of dutiable property. The Amending Act creates new subsection 8(1)(b)(ix) which now imposes duty on a change in beneficial ownership of dutiable property.

The Minister indicated in his second reading speech that the Amending Act’s purpose is to charge stamp duty on structuring arrangements which are intended to be dutiable but were not previously captured. He gave the following example:

‘a fixed trust holding land … has two beneficiaries, each with an equal interest and one of these beneficiaries disposes of their 50 per cent interest to the other beneficiary. There is no change in the legal ownership of the land … but the remaining beneficiary has now acquired an additional 50 per cent beneficial interest in the land, without any duty being incurred. This is obviously contrary to the intentions of the Act.’

This new catch-all provision is designed to charge stamp duty on a wider range of transactions and dealings with dutiable property, including:

  • the creation and extinguishment of dutiable property;
  • the holding on trust of dutiable property or ceasing to hold on trust dutiable property; and
  • changes in the allocation of equitable interests in dutiable property.

For example, Revenue NSW has provided guidance that the following transactions are now subject to duty:

  • grants of put or call options (payable on the option fee excluding security deposits, performance payments or legal costs);
  • grants of easements; and
  • transfers creating life tenancies (other than by will or testamentary instrument).

There is a list of excluded transactions which mostly exclude transactions involving unit trusts or transactions for no consideration.

These provisions only apply to transactions that occur after commencement, being 19 May 2022.

Duty on acknowledgment of trust

Section 8AA(1) has been inserted by the Amending Act, charging duty on the making of a statement that:

  • purports to be a declaration of trust over dutiable property; and
  • merely has the effect of acknowledging that the dutiable property is held (or to be held) on trust for the person or purpose mentioned in the statement.

Section 8AA(2) makes it clear that the making of this statement is taken to be a declaration of trust and is a dutiable transaction, despite the statement not actually constituting a declaration of trust, i.e. merely acknowledging an existing state of affairs.

This reform is in response to the NSW Supreme Court decision in Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285. That case involved two purported declarations of trust. The first declaration involved Benidorm Pty Ltd declaring that it held a Sydney penthouse on trust for the beneficiary. After the beneficiary’s death, his last will and testament appointed the penthouse be held on trust for a new beneficiary, and Benidorm ‘declared’ that it held the same property on trust for the new beneficiary on the same terms as the first declaration. The Supreme Court of NSW held that the second ‘declaration’ was not dutiable under the Act as it did not constitute a ‘declaration of trust’ as it merely acknowledged the existing legal position whereby the interest of the deceased beneficiary had already vested in the new beneficiary.

As a result of new section 8AA, trustees should be cautious in executing documents that contain wording capable of being construed as a declaration of trust when the trust is already duly constituted, as this may trigger additional duty.

Two views can be taken as to how section 8AA may operate:

  • On a broad view, the breadth of the language of section 8AA may capture a broad range of transaction documents, such as custodian or bare trust agreements that identify how the dutiable property is held. It may also include routine documents, such as minutes, that refer to the trust.
  • On a narrow view, section 8AA may only capture trusts that were not subject to duty when they were first declared, such as resulting trusts.

Revenue NSW has issued some limited guidance on the operation of section 8AA. However, further more detailed guidance is needed to provide insight into how broadly section 8AA is intended to apply, and trustees should be cautious and obtain advice prior to entering into any documents that could be construed as a purported declaration of trust as it could result in duty applying to an arrangement that has already previously been assessed.

Other notable changes

Some additional amendments contained in the Amending Act include:

  • Changes to anti-avoidance provisions – Chapter 11A of the Act has been repealed and reinserted into the Tax Administration Act 1996 (NSW) so that all NSW state taxes are covered by the provisions, not just duties. The anti-avoidance provisions are aimed at deterring artificial or contrived schemes to reduce tax liability.
  • New promoter penalty regime – new provisions have been inserted making it a civil penalty to promote, market or encourage the growth of a tax avoidance scheme for NSW taxes.
  • Increase in penalty for significant global entities (SGE) – the amendments impose a higher penalty rate tax to SGEs regarding NSW taxes, with the base rate increasing from 25% to 50% for global parent entities with consolidated global income of at least A$1 billion.
  • Refund of surcharge purchase duty – the amendments enable Australian-based developers to apply for a refund of surcharge purchaser duty where residential-related land is later used for commercial or industrial purposes.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Revenue Practice Group.

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Lawyer in Profile

Jack Coventry
Jack Coventry
Senior Associate
+61 3 9258 3819

Qualifications: BA (Philosophy), Monash University, JD (Juris Doctor), University of Melbourne

Jack is a member of Maddocks Commercial team. He advises a range of corporate and private clients on:

  • M&A transactions,
  • corporate reorganisations, and
  • legal and tax structuring.

Jack acts for clients on both buy-side and sell-side and specialises in founder-owned businesses and Australian subsidiaries of multi-national companies. He works across a number of sectors including information technology, professional services, and property development and management including land lease.

Jack’s structuring work includes assisting multinationals to structure Australian operations, listed companies to achieve regulatory compliance / optimisation and providing general tax structuring. He has also represented clients in tax controversies including before the General Anti-Avoidance Review Panel (GAAR Panel) and the Federal Court of Australia.

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