New South Wales Budget 2023-24: Corporations and private trust schemes to help repair the economy
New South Wales Treasurer The Hon. Daniel Mookhey MLC handed down his 2023-24 Budget on 19 September 2023 which focused on repairing the New South Wales economy to a more sustainable footing, as well as announcing some reforms to New South Wales property taxes.
A number of duty and land tax changes announced bring welcome news to first-home buyers and individual property taxpayers. However, other changes announced, including the replacement of the corporate reconstruction exemption with a concession and the reduction of the threshold for “significant interest” acquisitions in private unit trust schemes, bring unwelcome additional transfer and landholder duty liabilities to corporations and private unit trust schemes.
Set out below is a summary of the key state tax announcements.
Replacement of corporate reconstruction and corporate consolidation exemptions
From 1 February 2024, the corporate reconstruction and corporate consolidation exemptions that are currently available for dutiable transactions between corporations (including unit trust schemes) that are members of the same corporate group will be replaced with a concessional duty liability of 10 per cent of the duty that would otherwise be payable.
This change brings the New South Wales treatment in line with the concession that has applied in Victoria since 1 July 2019.
Corporate groups considering major internal reorganisations of businesses and assets, which include New South Wales land and chattels, should contemplate bringing forward these restructure transactions to avail themselves of the presently existing full corporate reconstruction exemption which will continue to be available for transactions that occur prior to 1 February 2024.
Landholder duty threshold decrease
The threshold for an acquisition of a “significant interest” in a private unit trust will reduce from 50 per cent to 20 per cent.
This means that acquisitions of minority interests in private unit trust schemes, as well as aggregated separate minority interest acquisitions, will be subject to landholder duty. Given this, we recommend seeking advice prior to any acquisition of units in a private unit trust scheme with New South Wales land holdings.
This change will apply to acquisitions that are completed on or after 1 February 2024 unless they arose from an agreement or arrangement entered into before the amending legislation was introduced into Parliament.
This change aligns the significant interest percentage that applies in New South Wales with Victoria.
Principal place of residence land tax exemption
The ownership requirements for the principal place of residence land tax exemption will be amended to now include a requirement that the property owner/s will need to own at least a 25 per cent interest in the relevant property to qualify for the exemption.
This change closes a currently existing loophole where a property can be eligible for a principal place of residence exemption in circumstances where an owner only holds a minority interest in the property (e.g. 1 per cent interest) but resides at the premises.
However, the announced increase in the ownership percentage to at least a 25 per cent interest will still allow taxpayers to structure the ownership of property in New South Wales with multiple owners for asset protection purposes.
Owners that currently claim the principal place of residence exemption from land tax but own less than a 25 per cent interest in the land can continue to claim the exemption for the 2024 and 2025 land tax years, but will need to meet the new minimum 25 per cent ownership requirement in order to claim the exemption from the 2026 land tax year.
We recommended that appropriate advice be obtained in relation to:
any proposed transaction that results in a change in ownership interests in existing land subject to a principal place of residence exemption; or
any proposed acquisition of land by multiple owners with the intention of utilising the principal place of residence exemption.
Revision of land tax thresholds
From the 2024 land tax year, the land tax threshold system will be revised to rectify an anomaly in the land tax indexation formula and an error in calculations underpinning the 2021 land tax threshold, which have resulted in higher than intended land tax thresholds in the 2021, 2022 and 2023 land tax years.
As a result, we expect the land tax general and/or premium thresholds in New South Wales to decrease. However, given the current property market in New South Wales, the threshold decrease is unlikely to have a material impact as a standalone measure.
Other duty and land tax changes
Other duty and land tax changes announced include:
from the 2024 land tax year, individual property owners may receive a 0.5 per cent early payment discount if their whole land tax liability is paid within 30 days of the issue of the notice of assessment in the relevant land tax year; and
from 1 January 2024, the removal of the stamp duty exemptions and rebates on the purchase of certain electric and hydrogen fuel cell vehicles.
Previously announced changes include:
from 1 July 2023, the removal of the 90 per cent public landholder duty concession applicable on the acquisition of 90 per cent or more of the shares or units in a public landholder such that full landholder duty now applies; and
from 1 July 2023, first home buyers receive a transfer duty exemption on purchases of land valued up to $800,000 and a concession for purchases valued between $800,000 and $1 million under the First Home Buyers Assistance Scheme.
Additional investments are being made in improved compliance systems for Revenue NSW with a view of increasing payroll tax, land tax and transfer duty revenue.
The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex (Aust) Pty Ltd.