As the NSW State Government seeks to recover funds after the increased challenges of the past couple of years, the 2022-23 NSW State Budget included a number of proposed measures for increasing revenue, as well as changes to the way some current practices are defined and handled.
The key changes have now been enacted under the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 No 16 which received assent on 19 May 2022 and the State Revenue Legislation Amendment Bill 2022 No 32 which received assent on 27 June 2022.
What has changed?
We can’t cover the minutiae of every single change that has been made, rather, we’ve gathered the ones that we feel are most important and relevant to you, our clients.
The key changes we will cover here relate to Land Tax, acknowledgement of trust, change in beneficial ownership of dutiable property and change in beneficial ownership – grant of an option.
Land Tax
Land Tax Surcharge – Principal Place of Residence Exemption
Previously, the eligibility requirement for foreign residents to access an exemption from land tax surcharge on a principal place of residence was such that they were required to use and occupy the land as their residence for a continuous period of 200 days or more in the current land tax year. There was no requirement for a physical presence of 200 consecutive days.
Following the recent amendment, the ruling has been made that the land must still be the foreign persons principal place of residence, however if the owner is physically absent from Australia, this absence does not count towards the 200 day period.
Effectively, the 200 day period will reset each time the owner is physically absent from Australia and so foreign residents must be physically present in Australia for 200 or more consecutive days in the land tax year in order to be eligible for the Principal Place of Residence Land Tax Surcharge Exemption.
Increase in Land Tax Surcharge for Foreign Residents
From the 2023 land tax year, surcharge land tax payable on residential land owned by foreign persons is increased from 2 percent to 4 percent of the taxable value of the residential land owned at midnight on 31 December 2022.
Acknowledgement of Trust
The amendment of Section 8AA of the Duties Act 1997 means that, where once duty was only payable specifically on “declaration of trust”, and not on an acknowledgement of an existing trust, duty is now payable on any document that is prepared, or executed, that confirms or acknowledges a trust.
The change was in response to a recent case Benidorm Pty Ltd v Chief Commissioner of Revenue [2020] NSWSC 471 in which it was determined that the executed document did not meet the definition of a “declaration of trust” under the Duties Act 1997. And so the new amendments have been put in place to widen the scope and definition of what constitutes a dutiable transaction in relation to trusts.
As a result, it is now very important to exercise extreme care and diligence when preparing these types of documents so as to be aware if/when a dutiable transaction may be triggered.
These changes are effective for any acknowledgements occurring on or after 19 May 2022.
Change in Beneficial Ownership of Dutiable Property
Changes to Section 8(1)(b)(ix) of the Duties Act 1997 introduce duty on certain transactions that results in a change in beneficial ownership of dutiable property. This includes:
- the creation of dutiable property
- extinguishment of dutiable property
- a change in equitable interests in dutiable property
- dutiable property becoming the subject of a trust or
- dutiable property ceasing to be the subject of a trust
Some transactions are now dutiable as a result of the introduction of this section including the grant of an option (see below for more information).
It is important to note that The Act excludes certain transactions from comprising a change in beneficial ownership.
The changes will take effect for transactions entered into on or after 19 May 2022.
However, section 8(1)(b)(ix) does not extend to change in beneficial ownership transactions arising after the commencement date if the transaction occurs in accordance with an agreement or arrangement entered into before the commencement date.
Change in Beneficial Ownership – Grant of an Option
As mentioned above, changes to Section 8(1)(b)(ix) of the Duties Act 1997 introduces duty on certain transactions that results in a change of beneficial ownership of dutiable property, including the creation of dutiable property.
This means that ad valorem duty will be payable on grant of an option transactions entered into on or after 19 May 2022. For example, any call option or put option fee (consideration) paid will be dutiable. The option fee includes GST (if applicable).
It should be noted that, section 8(1)(b)(ix) does not extend to change in beneficial ownership transactions arising after the commencement date if the transaction occurs in accordance with an agreement or arrangement entered into before the commencement date.
Payroll Tax Rate
To assist businesses with increased financial pressures over the past couple of years, the Payroll Tax rate was lowered to 4.85% for the 2020-21 and 2021-22 financial years.
The rate will return to the previous level of 5.45% from the 2022-23 financial year.
It has been said that revenue from payroll tax is likely to overtake that of transfer duty in the coming year, as a result of expected slowing in the residential property market.
Coming Soon – First Home Buyer Choice
The 2022-23 NSW Budget announced the First Home Buyer Choice initiative that sees first home buyers purchasing properties for up to $1.5 million able to choose to pay an annual property tax instead of stamp duty. The property tax will only be payable by first home buyers who choose it, and will not apply to subsequent purchasers of a property.
It is intended that First Home Buyer Choice will be legislated in the second half of 2022 with contracts signed on or after 16 January 2023 eligible for the new options. Contracts signed between passage of legislation and 15 January 2023 will be required to pay applicable stamp duty with the option to apply for a refund and opt in to the property tax after 16 January 2023.
We can Help
While these changes are intricate and can appear overwhelming, there’s no need to worry, The expert team of tax accountants and lawyers at The Quinn Group are always abreast of all NSW State and Federal based revenue and taxation changes. Contact us by completing an online enquiry or call us on +61 2 9223 9166 to discuss any queries you might have regarding the recent changes, or any existing NSW based State revenue queries or compliance issues.
