The Duties Act 1997 (NSW) has recently been amended by the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (the Amendment Act), which received Royal Assent on 19 May 2022. The changes to the Duties Act 1997 (NSW) can be found in Schedule 1 of the Amendment Act.
What are the major changes? Are these changes going to affect your property transactions? Although it might be too early to speculate exactly what transactions would be affected without actual rulings, finding out what the main changes are and their possible effects will offer the advantage of awareness and preparedness for your future business plan.
What are the main changes to the Duties Act and their possible effects?
The major changes are:
- the insertion of section 8(1)(b)(ix) to widen the scope of transaction concerning dutiable property;
- the insertion of section 8AA to impose duty on acknowledge of trust;
- the insertion of section 68(1A)(b)(iia) concerning evidentiary requirements for exemptions on dutiable properties as a result of breakup of de facto relationship;
- the replacement of section 274(1) –(5) concerning transfer of certain business property between family members.
Insertion of section 8(1)(b)(ix)
Section 8 is titled “Imposition of duty on certain transactions concerning dutiable property”.
Section 8(1)(b)(ix) provides:
“another transaction that results in a change in beneficial ownership of dutiable property, other than an excluded transaction.”
Revenue NSW suggests section 8(1)(b)(ix) covers transaction of:
- grant of an option;
- the creation of dutiable property;
- the extinguishment of dutiable property;
- a change in equitable interests in dutiable property;
- dutiable property becoming the subject of a trust;
- dutiable property ceasing to be the subject of a trust.[1]
In addition to grant option of shares in banking and finance sector and to senior management team as part of the pay package, this section could also cover option agreement in land transactions. Option agreement used to be an instrument to commit the parties to the land transaction without immediate tax liability, the insertion of section 8(1)(b)(ix) could change this practice.
The insertion will also affect operation of trust. Variation of beneficiaries’ interest in the trust assets, and addition of assets to an existing trust may now attract duties.
Insertion of section 8AA Imposition of duty on acknowledgment of trust
“(1) This Chapter also charges duty on the making of a statement that—
- purports to be a declaration of trust over dutiable property, but
- merely has the effect of acknowledging that identified property vested, or to be vested, in the person making the statement is already held, or to be held, in trust for a person or purpose mentioned in the statement.
(2) For the purpose of charging the duty—
- the making of the statement is taken to be a declaration of trust over dutiable property and, accordingly, is a dutiable transaction, and
- the property vested, or to be vested, in the person making the statement is taken to be the property transferred, and
- the person making the statement is taken to be the transferee, and
- the transfer is taken to occur when the statement is made.”
This insertion specifically applies to the dutiable property when a statement is made to acknowledge of trust, even if the dutiable property has not been actually vested in the person making the statement. If you are a trustee, and making a statement to acknowledge trust for a dutiable property, you could attract immediate tax liability whether the property has actually been vested in you or not.
Insertion of section 68(1A)(b)(iia)
“(iia) an agreement that the Chief Commissioner is satisfied has been made for the purpose
of dividing relationship property as a consequence of the breakdown of the relationship, or”
Section 68 is an exemption clause. Previously, for break-up of de facto relationship, the exemptions of duty only apply to an agreement for sale or transfer of relationship property in accordance with a financial agreement under section 90B, 90C or 90D of the Family Law Act 1975 (Cth) or a court order under the same act. Now, for persons unable to obtain a financial agreement or court order under the Family Law Act 1975 (Cth), you have one more option as detailed in section (iia).
Replacement of section 274(1)-(5)
Section 274 is an exemption clause in respect of land used for primary production together with any other property that is an integral part of the business of primary production. Previously, this exemption clause expressly applies to a transfer or agreement for the sale or transfer of land, a lease of land, or a transfer or assignment of a lease or permit in respect of land. Now these words have been replaced by the phrase “a transfer of land”. Revenue NSW purports that “the transfer of land” applies to:
- original executed agreement for the sale or transfer of the land and/or executed transfer of land, or
- original executed lease of the land, or
- original executed transfer or assignment of a lease or permit in relation to the land, or
- if electronic settlement a copy of the ‘transfer of land’ in the ELNO workspace or details on the transfer of land, and confirmation when the transfer of land was first signed.[2]
Previously, the transferee to the transaction must be an individual. This amendment extends the exemption to transaction where the transferee is a deceased estate, a trust, a superannuation fund, a private unit trust scheme or a proprietary limited company, while the family member must be the person directing the transferee.
In case of transferee being a proprietary limited company or a trustee of a discretionary or of a private unit trust scheme, the person directing the transferee must maintain the person’s minimum 25% interest in the transferee for 3 years after the transfer.[3]
Time to review, and revise
This amendment to the Duties Act 1997 (NSW) is extensive in areas of the scope of transaction concerning dutiable property, when statement made in acknowledging of trust over property, and transfer of primary production land between family members. Familiarise yourself with the latest changes to the Duties Act 1997 (NSW), update your business plan to avoid any tax liability surprise.
[1] Duties Act evidentiary requirements: Section 8 < https://www.revenue.nsw.gov.au/help-centre/resources-library/evidentiary/duties-act-requirements-section-008 > accessed 7 July 2022.
[2] Duties Act evidentiary requirements: Section 274 < https://www.revenue.nsw.gov.au/help-centre/resources-library/evidentiary/duties-act-requirements-section-274 > accessed 7 July 2022.
[3] Explanatory Note, State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 (NSW) 3.