Aligning NSW with Victoria's stamp duty rules 4 min read
The 2023 NSW budget contained a number of significant changes to stamp duty, including:
- the landholder duty acquisition threshold for private unit trusts has been lowered from 50% to 20%
- wholesale unit trust scheme registration has been (re)introduced
- the corporate reconstruction exemption has been replaced with a 10% concession.
This legislation (Treasury and Revenue Legislation Amendment Act 2023 (NSW) No 26) passed both houses of parliament and received royal assent on 27 September 2023. The above changes will take effect on 1 February 2024 with limited transitional relief.
These changes are most relevant to any wholesale or closely held property fund with land in NSW, as well as to any corporate or trust group with land (including leased premises), mining tenements or other interests in land in NSW seeking to effect an internal restructure.
Any taxpayer seeking to effect a transaction or restructure before the changes take effect may need to complete the transaction or restructure before 1 February 2024 to ensure the current provisions apply.
Landholder acquisition threshold and tracing threshold
From 1 February 2024, the acquisition threshold for landholder duty for a private unit trust drops from 50% to 20%, unless the trust is registered as a 'wholesale unit trust scheme'. These rules do not apply to unit trusts that are public landholders (such as listed or widely held unit trusts), for which the acquisition threshold remains at 90% (but note that an earlier recent reform removed the concessional rate of duty for relevant acquisitions in public landholders).
In addition, the landholder provisions trace through to underlying landholdings of interposed entities which are 'linked entities'. The tracing threshold for linked entities will fall from 50% to only 20%, meaning a larger number of companies and unit trusts will become landholders for NSW landholder duty purposes.
The NSW wholesale trust registration provisions are broadly similar to the current Victorian wholesale trust registration rules. Below, we set out a comparison table highlighting some of the key differences, particularly in relation to what types of entities will be 'qualified investors'. There are differences such that a trust may qualify under the NSW rules even if it did not qualify under the Victorian rules, or vice versa. The most significant to note is the higher NSW threshold of 80% held by qualified investors (as compared to 70%) and that foreign sovereign wealth funds can potentially be qualified investors.
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|
Victoria |
New South Wales |
|
Minimum qualified investor threshold |
≥70% |
≥80% |
|
Concentration of ownership |
No qualified investor with ≥50% |
No qualified investor with ≥50% |
|
Startup phase concession |
Satisfy test within 12 months |
Satisfy test within 12 months |
|
Other discretionary registration |
Declared wholesale unit trust |
No |
|
Scale requirements |
Minimum land holdings or subscriptions by investors |
No |
|
Duration of registration |
3 years |
3 years |
|
Which of these unitholders might be a 'qualified investor'? |
||
|
Large complying super funds |
Yes |
Yes |
|
Foreign equivalent of a large super fund |
With approval |
With approval |
|
Statutory fund of a life company |
Yes |
Yes |
|
Listed unit trust or listed company |
Yes |
Yes |
|
Registered wholesale unit trust |
Yes, if registered in VIC |
Yes, if registered in NSW |
|
Investor directed portfolio service |
Yes |
Yes |
|
Commonwealth, state or territory (or statutory body representing the Crown) |
Yes |
Yes |
|
Foreign government entity representing the Crown |
No |
Possibly, with approval |
|
Custodian (or agents / nominee) for the above |
Yes |
Yes |
|
Wholly-owned subsidiary or sub-trust of the above |
No (except of certain foreign entities) |
No (except of large complying super funds) |
The new laws will not apply to acquisitions occurring before 1 February 2024, or if an acquisition occurs after 1 February 2024 if the acquisition arose from an agreement or arrangement entered into before 19 September 2023.
We understand it will be possible to apply for wholesale trust registration in NSW prior to 1 February 2024, and that a registration form will become available in the near future.
Corporate reconstruction duty
From 1 February 2024, duty on an eligible corporate reconstruction transaction or corporate consolidation transaction will be imposed at a concessional rate (of 10% of the duty otherwise payable, or roughly 0.55%) and there will no longer be complete exemption for such transactions.
This change also follows a similar change in Victoria that occurred a few years ago, but helpfully, NSW will still have a regime for obtaining pre-approval of the concession.
The new laws contain limited transitional provisions that apply to transactions that arise from an agreement or arrangement entered into before 19 September 2023, provided the exemption application is lodged before 1 April 2024. It might be the case that an application for ruling lodged before 19 September 2023 contains sufficient evidence of an arrangement.
You may wish to consider effecting any corporate reconstruction of NSW assets before 1 February 2024 to future proof your fund. We understand Revenue NSW is expecting a large number of corporate reconstruction applications in the next few months.
If you require a ruling in advance of the transaction to effect your restructure, you should allow sufficient time to obtain this before 1 February 2024, as the transaction itself must take place before this date. It will not be sufficient to apply before 1 February 2024 if your transaction does not happen before this date. The transitional provisions do not contain any concession for pre-approval ruling applications that are waiting for determination even if they were lodged prior to 1 February 2024.