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Law Society 2017 Country Convention - Stamp Duty Update Presentation [Shared]
Transcript of Law Society 2017 Country Convention - Stamp Duty Update Presentation [Shared]
2017 COUNTRY CONFERENCE
KINGSCOTE KANGAROO ISLAND
STAMP DUTY UPDATE: THE IMPACT
ON REGIONAL AND RURAL PRACTICE
Conveyances date of sale amendments - retrospective
Section 14(2) deemed multiple instruments - 18 June 2015
Duty on units abolished from - 1 July 2018
Removal of $1 million landholder threshold - 1 July 2018
Stamp duty relief for charitable and religious bodies varied
Exemption for voluntary conveyances not wholly for commercial or business - 26 November 2015
Exemption for conveyances not wholly for commercial or business - 1 July 2016
Stamp duty concessions for exploration tenements
Stamp duty for Special disability trust residences
Abolition of landholder relief provisions in section 102G(3) and (4)
Abolition of gaming machine surcharge
More anti avoidance provisions
Overview of Changes
Abolition of Stamp Duty on non quoted financial products - 18 June 2015
Abolition of stamp duty on most non real property transactions - 18 June 2015 (other than applications to register and transfer motor vehicles)
Abolition of prescribed goods - 1 July 2016
Abolition of duty on goods of a landholder - 1 July 2016
Statutory reconstruction relief for companies and unit trusts -
Stamp duty phased abolition on commercial property
One third reduction from - 7 December 2015
Two thirds reduction from - 1 July 2017
Exempt from - 1 July 2018
Reinstate family farm relief involving discretionary trusts - 26 November 2015
Abolition of partition and division exemption in section 71B - 18 June 2015
Off the plan sale of apartments rebate extended to whole State in respect of contracts entered into pre 1 July 2017
Abolition of Stamp Duty on non quoted financial products from 18 June 2015
Abolition of stamp duty on most non real property transactions from 18 June 2015
Abolition of duty on goods of a landholder from 1 July 2016
Prior agreements and post conveyances are still dutiable
Extended definition of land
an estate or interest in land
an option to acquire land
subject to section 31, the right to acquire an estate or interest in land
mining tenements , pipeline licences and forest property
fixtures at law
items affixed to land
Prescribed goods and a dutiable transaction post 18 June 2015 and pre 1 July 2016
Non Realty Abolition
Excluded from definition of land
excluded by regulation
item affixed to land but not conveyed with the land
Application to leasehold interests or transactions involving them
Goodwill of a site, does it run with the lease or the fee
Care with scope of section 104C(2) and what is not abolished - indirect interests in land outside of landholder (i.e. deceased estates, fixed trusts etc)
Removal of $1 million landholder threshold from 1 July 2018
Commercial property (qualifying land - section 71DC) duty reduction
three year phased abolition by 1 July 2018
first step from 7 December 2015
predominantly used for any purpose other than residential or primary production
Commissioner has regard to VG use code or vacant and zoning or should be taken to be so used
Various issues where use codes are not reflective of current use
Commissioner appears to treat the reduced rate as applying to any fixtures or items affixed - there were questions about it application to prescribed goods
Reduced rate applies to landholders and appeared to be applied to included goods of landholder
Rebate provision for duty otherwise paid in South Australia on transaction but not elsewhere (i.e. generally applicable to unit transfers)
Commercial Property Duty Abolition
Reinstate section 71CC relief for discretionary trusts, unit trusts and self managed superannuation funds
Abolition of section 71(4) from 1 July 2018
implications for unit trusts
implications for other trusts
Stamp duty concessions for exploration tenements
Section 67 - deemed to occur at time of earliest
Section 67 - exclusion for different transferors and common transferee from 8 December 2016
A is the 60% shareholder of B Pty Ltd. C holds the other 40%. They are unrelated. B Pty Ltd conducts the business of retailing primary production machinery. The business is conducted from leased land in a major rural city. They have a significant investment in facilities for the sale, servicing and repair of such machinery. Much of the new equipment is on floor plan but the second hand items are generally owned but some may be on consignment. B Pty Ltd is registered in South Australia for the purposes of the
Corporations Act 2001
(Cth). A transfers his 60% shareholding to C's family trust for full value after 1 July 2016. What are the duty consequences.
Section 14(2) deemed multiple instruments
Without limiting the effect of subsection (1), an instrument relating to types of property that are chargeable with different rates of duty, or relating to a type of property chargeable with duty and a type of property not chargeable with duty, is to be treated for the purposes of this Act as if the provisions of the instrument relating to each of the different types of property were a separate instrument and related only to that type of property.
What does type of property mean
is an interest in a trust a type of property or can you look through it to the underlying property (i.e. unit trust, fixed trust, interest through a deceased estate and an object of a discretionary trust)
What if the trust has debts (see Revenue Ruling SDA003 for aspects):
do they come off
how are they apportioned
what happens if they are secured on some specific property
there is interstate property and debts
Does s 2(2) impact on this concept
Example 1 Discussion
Stamp duty on the transfer of financial products was abolished with effect from 18 June 2015. So no duty is payable on the transfer of the shares in South Australia. The company operates from leasehold land. Do the fixtures and items affixed constitute a tenants interest in the land and if so, is the value in excess of $1 million. If it is then it will be a landholder prior to 1 July 2018. If after 1 July 2018 the interest is likely to be an interest in land that is qualifying land and so exempt, so the landholder provisions do not apply.
A is the 60% unitholder of the B Unit Trust. C holds the other 40%. A and B are unrelated and have held their interests for many years. The B Unit Trust conducts the business of retailing primary production machinery. The business is conducted from land owned by the company in a major rural city with a value of $2.5 million. They have a significant investment in facilities for the sale, servicing and repair of such machinery which has a considerable value in excess of the $2.5 million. Much of the new equipment is on floor plan but the second hand items are generally owned but some may be on consignment. The B Unit Trust is established in South Australia, the unit register is in South Australia and the trustee is registered in South Australia. A transfers his 60% unitholding to C's family trust for full value after 1 July 2016. What are the duty consequences.
Example 2 Discussion
The transfer of the units will be liable for ad valorem duty on their net value, if effected prior to 1 July 2018. C and C's family trust are likely to be regarded as a group under the landholder provisions. The acquisition involves the acquisition of a majority interest in the unit trust by the group. Landholder duty will be assessed on the acquisition of a 100% interest in the unit trust (i.e. the group has acquired a prescribed interest). The duty will be computed on the $2.5 million plus the value of the fixtures and items affixed to the land. The value of all goods will be ignored. The land involved is likely to be regarded as qualifying land so the rate of duty at the date of the change (subject to any prior contracts). If prior to 1 July 2018 there will be a rebate for the duty paid on the units and a rebate on the existing 40% as it would have been held for more than three years.
E Pty Ltd is granted a lease of hotel premises in a rural town for five years with two rights of renewal at market rent. E Pty Ltd also enters into a contract to purchase the business (i.e. plant and equipment etc, stock in trade and goodwill) conducted on the land from the owner of the land for $3 million. The contract allocates $1.8 million to goodwill, $800,000 to plant and equipment and $400,000 to stock in trade. The plant equipment includes, refrigeration, bars, coolrooms, tables, chairs, kitchen and dinning rooms facilities and equipment. How is it likely to be assessed.
Example 3 Discussion
The grant of the lease is exempt. If any consideration is given for the grant of the lease (other than rent) then ad valorem duty is payable on that consideration. There is no duty on the goodwill, stock in trade and the plant and equipment other than to the extent that the plant and equipment constitutes fixtures or items affixed to the land. The sale of such fixtures and items affixed constitutes a disposal of an interest in land. This could extend to the coolrooms, bars and refigeration equipment described.
The N Unit Trust holds a commercial rental property in South Australia ($3 million), publicly listed shares ($.5m), all of the units in a private unit trust that conducts a fish processing business (stock, plant and equipment, goodwill etc) from leased premises ($2 million) and a fishing boat, licence and quota ($1.5 million). A mortgage of $.5 million is secured against the land with no other liabilities. There are four equal unit holders in the trust. One of the unit holder transfers its unit holding to an unrelated third party. What is the position if the units are transferred to one of the other unitholders? All unitholders have held their interests for more than three years. Is the position any different if $.5 million is an unsecured loan?
Example 4 Discussion
If the acquisition is by a fellow unitholder then the acquisition will involve the landholder provisions. The duty will becalculated on the acquisition of a 50% interest in the $3 million property (i.e. no allowance for the debt, namely $1.5 million). There will be a rebate for duty paid on the unit transfer and as the units were held for more than three years a rebate in respect of the 25% interest held.
If the acquisition is post 30 June 2018 there is no nit duty or landholder duty as it is commercial real property.
The total assets of the unit trust are $7 million. The net asset positn is $6.5 million. Net commercial real property is $2.5 million. The duty will be calculated on the net real property and a 25% interest passing namely $625,000. As the land is qualifying land the duty will reflect the concessional rate for such land prior to 1 July 2018. No landholder duty is payable. This assumes there is no land interest through the fish processing business.
If the $500,000 is unsecured then it will be pro rated across all assets so $214,285 (i.e.500,000 x (3,000,000/7,000,000)) will be allowed as a deduction against the land component. So duty will be assessed on $696,428 (i.e. (3,000,000 - 214,285) x .25).
A and B are husband and wife conducting an extensive farming partnership cropping extensive broad acres and running a large number of sheep. They have expanded considerably over the years. They have extensive plant and equipment, some very large and expensive machinery and grain holding and cleaning facilities.
Some of the land is in their joint names, some is shown in the accounts as a partnership asset, some land is in a company (A and B are the shareholders), some in a broad discretionary trust, some in a discretionary trust (it does not satisft section 71CC) and some in a self managed super fund (A and B are the members).
They propose to admit their two sons to the partnership as equal partners. They would also propose to separate much of the land into two discrete holdings to facilitate their succession planning but for the time being retain control.
Example 5 Discussion
The land is in joint names so it could be left as it is and dealt with by the will of the survivor. If it is transferred to two 71CC trusts one with son 1 as designated beneficiary B and the second with son 2 as designated beneficiary B then there should be section 71CC relief available, provided other conditions satisfied.
The admission of the sons to the partnership will give rise to a stamp duty consequence in respect of the interests acquired, if capital interests. The duty would be assessable on the interests acquired based on the percentage of the gross value of the land (see Circular 191) whether effected with or without an instrument in view of the Commissioner (arguably no matter that there is no change in the title). However, if the requisite relationship exists then section 71CC may be able to provide relief.
The transfer of the shares will not involve any marketable security duty but will require consideration of landholder duty. If prior to 30 June 2018 then if the value of the land is less than $1 million then not apply. If after that date then threshold is $0. As within members of the family group or trusts controlled by them then there are grouping issues. If transferred to sons or 71CC trusts then section 71CC may provide relief on a look through basis (section 102F(1)).
Land in discretionary trust coul be left as is. Attempting to split the trust may create issues under section 71(5)(d). Could distribute in specie to one of the parents who could then contribute it to one of the section 71CC trusts, if the relationship exists.
Land in super fund could be rolled into a new fund. It may be possible to satisfy section 71CC but query who is B in such a situation. Alternatively, section 71DA could be used on one of the members ceasing to be a member of the existing fund or ceasing to be entitled benefits and becoming a member of another fund.
T is the proprietor of a commercial property in Adelaide with a value of $5 million. On 30 November 2016 T leases the property to U Pty Ltd for four years with an option exercisable at anytime after 30 June 2018 for U Pty Ltd prior to the expiry of the lease to purchase the property at its market value at the time of the exercise of the option.
Does it make any difference if the option price is the market value at the date of the lease?
Example 6 Discussion
Section 109 contains a general avoidance provision that attempts to deal with arrangements designed to in effect take advantage of the reduction of the rates of duty on qualifying property.
The question is whether the lease an option arrangement has the characteristics of such an arrangement. If the purchase price under the option is the market value as at the date of the lease then there is a risk that it has the character of an arrangement to take advantage of the relief. If the price is determined as at the time of the exercise of the option I would suggest there is less risk. The purchaser is accepting a commercial risk that thprice may be different as well as paying rent
A developer uses a number of different agents to approach adjoining or nearby landowners to buy their properties in the name of the agent. The various agents then assign the benefit of the contracts to the developer. Notice is given to the vendors and the conveyances are all then in favour of the developer.
Example 7 Discussion
Whilst there may be some doubt whether the Commissioner of State Taxation will be satisfied that the persons conveying the land are still acting separately and independently, the answer provided to the Parliament on this example is that the Commissioner would be satisfied. that they are acting independently. So in this situation section 67 will not be applied notwithstanding land is acquired by one person with a common purpose.
X Pty Ltd enters into a contract to acquire land in a regional city in an area designated as a mixed use zone. The land is an old vacant commercial building. The developer proposes to erect a building that has a mix of commercial premises and apartments using the building facade. Does it make any difference if the warehouse has been demolished? Does it make any difference if the land is zoned residential?
Example 8 Discussion
If the land use as designated by Valuer-General is not residential then the land will be regarded as qualifying land for the purposes of determining the rate of duty. There may be an issue if it is not used, because the requirement of the provisions is that it being predominantly used for that purpose. Though it is not being used, the character of the improvements are not residential, so the exemption should be available. However, if the land is vacant or vacant with minor improvements and the land is within a zone that envisages use for residential purposes then it is likely to be taken to be used for residential purposes (i.e. it will not be qualifying). If zoned residential and vacant then it will not be qualifying land.
Conveyances date of sale amendments
the date of sale for all purposes will be the date of the conveyance (s 60A)
consequential amendment where there is an exchange of property (s 65)
consequential amendment to off-the-plan relief (s 71DB)
consequential amendments to section 31
SDA008[V3] – interest and penalty only from 18 June 2015
Sections 31 and 31A amendments to conform with date of sale changes and adjudging transfer to dutiable contract
Some Other Changes
H Pty Ltd as trustee of a family discretionary trust is the owner of broad acres on the edge of a regional city. J Pty Ltd wishes to acquire that land from H Pty Ltd for a subdivision development. It will take two to three years to obtain the planning approvals for the subdivision. It is then proposed to carry out the division in four stages. It is likely that the required development works on each stage will take approximately twelve months. Each stage will take one to two years to sell. J Pty Ltd proposes to execute an option to acquire the land with the right to exercise the option in respect of each of the stages. H Pty Ltd prefers to ensure that J Pty Ltd is bound to acquire the land if subdivisional approval is obtained. Is there now any difference in effect for stamp duty purposes.
If H Pty Ltd also requires a profit share from the sale of each block in addition to the base price. What is the effect for stamp duty.
Example 8 Discussion
Prior to the amendment to the date of sale provisions, the position (though not always accepted by the Commissioner in practice) was that on a sale the date of sale was the date of the contract. So the consideration under the contract or the value as at the date of the agreement was the value for the purpose of determining the stamp duty under section 60A. If an option was taken, then the date of sale was the date the contract was concluded on the exercise of the option. So the enhanced value of the land from the subdivisional approval may be taken into account in valuing the land, if the option is exercised after such approvals are obtained.
Now the date of sale is the date of the conveyance for all purposes. So whatever is the date of the contract (i.e. whether arising from a contract or the exercise of the option) it makes no difference, it is the enhanced value, as it is now based on the consideration or value as at the date of the conveyance.
In 1984 D agreed by a contract in writing to sell rural land to the corporate trustee of his discretionary trust at its then market value. The contract included all of the required disclosure statements etc. The contract provided that the discretionary trust was granted immediate possession. Over time D has released the corporate trustee by deeds of release of portions of the purchase price under the contract. No part of the purchase price is still outstanding. D is now elderly and wishes to effect a conveyance of the land to the trustee of the discretionary trust. The market value of the land today is significantly greater. On what basis will the transfer be stamped.
Example 10 Discussion
The amendments to the date of sale provisions have retrospective effect. It would therefore appear that the Commissioner will be entitled to assess the transfer on the basis of the current market value of the land notwithstanding the date of the contract, that the consideration payable under the contract as a the date of the contract was its market value or that the consideration has been fully satisfied.
Abolition of partition and division exemption in section 71B
significant impact on family arrangements
now need to fit in other provisions, if you can
watch out for landholder interests in estate
Stamp duty relief for religious bodies varied significantly
transfers to body wholly established for purpose
property not used for commercial purposes
no longer matters whether consideration is involved
Extension of the off plan sales of apartments relief to the whole State. Apartments must be the subject of a contract prior to 1 July 2017, effectively rebate on most of first $500,000 and abate depends on the stage of construction at the time of the contract.
Some Other Changes
A and B jointly own property 1 and property 2 and conducted farming operations on those properties in partnership (those properties are not partnership land). It is proposed to dissolve the partnership and for the various plant, equipment and stock to be shared between A and B. In addition A is to take property 1 and B is to take property 2. Consider the duty consequences.
Example 11 Discussion
Prior to the repeal of section 71B the partnership assets and land could have been the subject of a partition or division arrangement. So provided there was no payment by way of inequality in excess of $200, then there would e no duty.
Now the division of the partnership assets would involve no duty consequences (there is no suggestion of and land interests or indirect such interests). The division of the land would be regarded as a conveyance of a half interest in property 1 by B and a conveyance of a half interest by A in property 2. Each conveyance would be dutiable based on the market value of such interests.
A taxpayer wishes to benefit his church and ensure it has a secure income stream. He makes a voluntary disposition of a property to the church. The property is a small commercial property with a ten-year lease to a commercial lessee. The church will receive the income for the next ten years.
Example 13 Discussion
Based on the amended exemption it appears questionable that this voluntary disposition is free of stamp duty if the conveyance is effected prior to 1 July 2018. The issue is whether it is a commercial property that is to be used to provide rent whether its use is of a business or commercial use. After that date the property is likely to constitute qualifying land and be exempt from stamp duty.
The trustee of a charitable trust proposes to conduct a lottery with the prize being a dwellinghouse. It has contracted to purchase the dwelling from a builder as part of a house and land package. The builder has given the trustee a 20% discount on the basis that the builder is promoted as part of the lottery. What is the current position? Will the proposed exemption make any difference?
Example 14 Discussion
Prior to the exemption being inserted into the general exemptions the conveyance it is likely that the Commissioner would have assessed the conveyance as a conveyance on sale based on the market value as at the date of the conveyance. The exemption in section 71(5)(j) (prior to the 2015 amendments) only applied to voluntary conveyances that were voluntary disposition inter vivos. As there was a trust involved, notwithstanding there was consideration payable, it was deemed to be a voluntary disposition inter vivos. But it still may not have been a voluntary disposition. Sometimes ex gratia relief was available.
Following the amendment the question is whether the acquisition is regarded as the acquisition of a property to that is to be used as a business or commercial use. It is a residential property and the property itself is not to be used for such a use notwithstanding the broader transaction may be commercial. Under the prior regime ex gratia reief would most likely have been granted, so that suggests it would have been exempted.
A father and son have been in a primary production partnership for many years. The land was owned by the father. The father dies (his wife predeceased him) leaving the partnership interest to his son but the rest of his property to his son and three daughters. It is very simple will with little in the way of express powers for the executors. The daughters agree the son should have the land but on the basis that he gives up his interest in the other residuary estate assets (none involve interests direct or indirect in land). It is proposed to enter into a deed of family arrangement.
Example 12 Discussion
Prior to the repeal of section 71B if the deed of family arrangement was drawn or construed as effecting a division of the property of the residuary estate it and the conveyances to give effect should have had the benefit of section 71B. Now the Commissioner is likely to regard the daughters as conveying a three quarters interest in the land to the brother and assess ad valorem duty. If the daughters or any of them had the requisite business relationship with the brother then section 71CC could be used. If the will had a power of appropriation query whether the exercise of such a power could be used and satisfy section 71(5)(h) for an exemption. Also be watch out for the application of section 71AA.
Section 62 - land use entitlements
existing provision repealed
now applies to acquisitions of:
trust interest or
a transaction that confers a right to possession of a dwelling or land
does not apply to retirement village interest or one exempted by regulation
Dutiable as if a conveyance of a fee simple interest less any duty paid on leasehold interest
Some Other Changes
Much broader than previous ex gratia relief scheme
Applies from 18 June 2015
Applies to unit trusts
No pre or post three year association
No longer requires substantially all assets to be acquired
Discretionary trusts ineligible
Corporation has same meaning as Corporations Act 2001 (Cth)
A person holds property as holder, beneficially owner or control
Unit trust acts through trustee or custodian
A partner is taken to have a proportionate beneficial share
Extends to motor vehicle registration applications
Corporate group applies to parent company and subsidiaries
Parent corporation must have 90% direct or indirect control
Parent interest measured by voting control
Direct interest is holding the shares and indirect through other(s)
Security interest extends to unit in unit trust
A conveyance or agreement to convey to group member
Applies to landholder provisions but query section 71E
Corporate group interest must not be diminished
Purpose, change in structure or property holding in group
An ineligible trust must not hold property of the group
Must not be part of a state tax avoidance scheme
M is in control of L Pty Ltd a company that has conducted a manufacturing business from land that it has owned for many years. It also owns some rural land. M also controls a discretionary trust that owns other land used by L Pty Ltd and some rural land. M wishes to sell the manufacturing business of L Pty Ltd and believes the best way to do that is through selling shares in a clean corporate vehicle. M intends to retain control of L Pty Ltd because of its ownership of the rural land, he intends to go farming . He wishes to effect a restructure for that purpose.
Example 15 Discussion
M could establish a new company (NewCo) that is a subsidiary of L Pty Ltd. The business assets (other than land) could be transferred to Newco. That transfer would not be dutiable. If M wishes to transfer the business land of L Pty Ltd to NewCo he could use the corporate reconstruction exemption of part 4AA as NewCo and L Pty Ltd are likely to constitute a corporate group. It is unlikely that the he can use the corporate reconstruction relief for the business land in the discretionary trust. If he can wait until 1 July 2018 it is likely that all of the business land can be transferred as qualifying land and it will not be necessary to rly on thecorporate reconstruction relief.