Duties Amendment (Land Rich)
Bill 2004

New South Wales
Explanatory note
This explanatory note relates to this Bill as introduced into Parliament.

Overview of Bill

The object of this Bill is to amend the Duties Act 1997 for the following purposes:

(a) to impose duty on certain disposals by persons in land rich entities, so that duty
is chargeable in a similar manner to the vendor duty chargeable on a transfer
of land-related property, and make other changes to the land rich provisions of
the Act,

(b) to make other miscellaneous changes relating to the duty chargeable under the
Act, in connection with the following:

        (i) premium property duty,
        (ii) the assessment of, and exemptions from, vendor duty,
        (iii) transactions by charitable and benevolent bodies,
        (iv) interim assessment of duty.

Outline of provisions

Clause 1 sets out the name (also called the short title) of the proposed Act.

Clause 2 provides for the commencement of the proposed Act.

Clause 3 is a formal provision that gives effect to the amendments to the Duties Act
1997 set out in Schedules 1 and 2.

Schedule 1 Land rich amendments
Imposition of duty on land rich disposals
At present, the Duties Act 1997 (the Principal Act) provides in certain circumstances
for the imposition of duty on an acquisition of an interest in an entity, such as a
private unit trust scheme, if the assets of the entity are principally land holdings. Such
an entity is referred to as a land rich landholder. The duty (acquisition duty) is
payable if a person acquires a significant interest in the land rich landholder or,
having a significant interest, makes a further acquisition in the land rich landholder.

The duty is charged at the same rate as purchaser duty on a transfer of land under
Chapter 2 of the Act. The person making the acquisition is required to pay the duty.

The State Revenue Legislation Amendment Act 2004 made amendments to the
Principal Act which provided for the imposition of an additional duty on a transfer
of land (or other land-related property). This type of duty is payable by the vendor or
transferor, rather than the purchaser, and is known as vendor duty.

The principal purpose of the amendments made by Schedule 1 is to extend the land
rich provisions of the Principal Act so that duty is payable on a disposal of an interest
in a land rich landholder by a person who has a significant interest in that landholder,
in addition to any duty payable on the acquisition of that interest. The duty (disposal
duty) is charged at the same rate as vendor duty. The person making the disposal is
required to pay the duty.

The amendments repeal the current land rich provisions of the Principal Act and
replace them with a new consolidated chapter (proposed Chapter 4A) which will
cover both land rich acquisitions and land rich disposals. The provisions in proposed
Chapter 4A relating to land rich acquisitions are substantially the same as the
provisions currently contained in the Act relating to land rich acquisitions (with some
changes that are explained below).

The new provisions relating to disposal duty are principally contained in Part 3 of
proposed Chapter 4A. The provisions charge disposal duty on any disposal of an
interest in a land rich landholder by a person who has a significant interest in the land
rich landholder or who had such an interest within the period of 3 years before the
disposal. A person disposes of an interest in a land rich landholder if the person
ceases to have an interest in the land rich landholder, or the person’s interest
decreases, regardless of how that happens.

The general principles that apply to acquisition duty (such as the meaning of key
terms, and other principles relating to constructive ownership of land and valuation
of property) will also apply to disposal duty. However, imminent public unit trust
schemes and imminent wholesale unit trust schemes will be treated as private unit
trust schemes and as landholders for the purposes of the new provisions relating to
disposals. This differs from the treatment of those unit trust schemes under the
provisions relating to acquisition duty. In addition, valuations that have been
prepared within a 12-month period before a disposal may be used for the purpose of
assessing disposal duty.

Disposal duty will be subject to the same exemptions as currently apply to
acquisition duty.

In addition, some further exemptions and concessions apply to disposal duty. These
exemptions and concessions are contained in Part 6 of proposed Chapter 4A and are
similar to those that apply in relation to vendor duty. The exemptions and
concessions relate to the following:

(a) farms,

(b) new and substantially new buildings,

(c) land subject to conservation instruments,

(d) land that has not significantly increased in value,

(e) disposals for no consideration by charities and others not liable for vendor
duty under the Principal Act.

There are also exemptions for passive disposals and disposals that would otherwise
be subject to vendor duty as well as disposal duty.

The principal amendment is contained in Schedule 1 [4]. The amendments set out in
Schedule 1 [1]–[3], [5]–[9] and [12]–[15] are of a consequential or ancillary nature.

Schedule 1 [10] and [11] provide for savings and transitional matters. These
provisions include an exemption for disposals made pursuant to agreements entered
into before 7 May 2004.

Registration of unit trust schemes
Under the current provisions of the Principal Act relating to acquisition duty, a unit
trust scheme may be treated as a public unit trust scheme or wholesale unit trust
scheme if the Chief Commissioner is satisfied that it will become such a scheme
within 12 months. The determination as to whether a unit trust scheme is a public unit
trust scheme or wholesale unit trust scheme affects whether duty is payable on an
acquisition of an interest in the unit trust scheme.

The new provisions require such imminent public unit trust schemes and imminent
wholesale unit trust schemes, together with wholesale unit trust schemes, to be
registered under the Act. In the absence of registration, the unit trust schemes will be
treated as private unit trust schemes under the Act and, accordingly, an acquisition of
an interest in such a scheme may be dutiable as an acquisition in a private unit trust
scheme.

Imminent public unit trust schemes and imminent wholesale unit trust schemes do
not receive any concessions in relation to disposal duty (that is, they are treated as
private unit trust schemes), so registration under the new provisions will not affect
liability for disposal duty. However, wholesale unit trust schemes (other than
imminent ones) will need to be registered under the new provisions in order to
receive the benefit of the concessions that apply in respect of wholesale unit trust
schemes under the disposal duty provisions.

The Chief Commissioner of State Revenue will be required to keep a public register
of wholesale unit trust schemes that are registered under the new provisions.

The provisions relating to this proposal are set out in Schedule 1 [4], proposed Part
7 of Chapter 4A. The amendments set out in Schedule 1 [16]–[18] are of a
consequential or ancillary nature.

Schedule 1 [11] includes transitional provisions that provide for the phasing-in of the
changes in respect of wholesale unit trust schemes, and other unit trust schemes that
have been the subject of a previous assessment by the Chief Commissioner.

Definition of wholesale unit trust scheme
The amendments extend the list of qualifying investors who may hold units in a
wholesale unit trust scheme to include certain public authorities and custodians and
trustees of certain investor directed portfolio services. The provisions also make it
clear that a listed trust is not considered to be a wholesale unit trust scheme. See
Schedule 1 [4], proposed section 163ZU and Schedule 1 [18].

Concession for buy-back arrangements
The amendments introduce a concession for certain buy-back arrangements engaged
in by widely held trusts that might otherwise render acquisitions or disposals in the
trust scheme liable to duty. This concession is set out in Schedule 1 [4], proposed
section 163ZE.

Schedule 2 Other amendments
Premium property duty on large parcels of residential land
At present, when premium property duty (that is, the higher rate of duty on the
purchase of residential land having a dutiable value that exceeds $3,000,000) is
charged on a large parcel of vacant residential land it is charged only on that
proportion of the dutiable value of the land that is referable to 2 hectares of the land.

The amendment applies this same apportionment rule to all large parcels of
residential land, regardless of whether the land is vacant. Existing apportionment
provisions will continue to apply to land that is used partly for residential and partly
for non-residential purposes. See Schedule 2 [1] and [2].

Calculation of dutiable value of land-related property for vendor duty
The amendments require that, when calculating the dutiable value of land-related
property for the purpose of charging vendor duty, any amount payable by the
purchaser for vendor duty that exceeds 2.25% of the monetary consideration is to be
disregarded. In addition, any amount payable for GST in respect of a vendor duty
transaction that exceeds 10% of the monetary consideration for the transaction is to
be disregarded. As both vendor duty and GST are calculated by reference to the total
consideration payable in respect of a transaction, the provisions are intended to
prevent a cascading effect that is produced if the amount payable for the 2 taxes is
added to the consideration payable, and each tax then increases by reference to the
other. See Schedule 2 [4], proposed section 158 (3).

Aggregation of transactions for vendor duty
The amendments provide that aggregation principles that apply to dutiable
transactions under Chapter 2 of the Act do not apply to vendor duty transactions. See
Schedule 2 [4], proposed section 158 (4).

Principal place of residence exemption for vendor duty
At present, the Principal Act provides for an exemption from vendor duty in respect
of land that is used and occupied by the vendor as his or her principal place of
residence.

The amendments make it clear that to obtain the benefit of the principal place of
residence exemption in relation to vendor duty the vendor must be a natural person
who owns, or partly owns, the land concerned (or the land use entitlement to which
the land is subject). If land is owned by 2 or more persons, the person or persons
occupying the land as a principal place of residence must have a significant interest
in the land.

The amendments also make it clear that a part owner of land (including a corporate
part owner) may claim the principal place of residence exemption in respect of land
if the land is used and occupied as a principal place of residence by another part
owner who is a natural person and who holds a significant interest in the land.

At present, the Act allows the Chief Commissioner of State Revenue to apply the
principal place of residence exemption in relation to a vendor duty transaction in
circumstances where the Chief Commissioner considers it fair and reasonable to do
so. The amendments remove that broad discretion. Instead, the amendments will
specifically extend the principal place of residence exemption to the following
situations:

(a) where a person was unable to occupy land as a principal place of residence for
the required period because the vendor’s residence was being constructed on
the land during part of that period (provided that the vendor has actually used
and occupied the land as a principal place of residence for at least 6 months),

(b) where a person who marries or enters a de facto relationship disposes of a
residence he or she started to occupy before the marriage or relationship, and
the principal place of residence exemption has already been claimed by his or
her spouse in respect of a residence that the spouse started to occupy before
the marriage or relationship (that is, as an exception to the general rule that
only one principal place of residence can be claimed by members of the same
family),

(c) where land is used and occupied by a person under a legal disability who does
not own the land.

Other amendments to the principal place of residence exemption:

(a) clarify that the principal place of residence exemption applies in respect of
land that has been owned and occupied by a person for a period of less than 2
years only if the person has not, during that period, occupied other land for
residential purposes, and

(b) extend an existing concession for land used primarily for residential purposes
that is also used for incidental business purposes, so that it is no longer
required, in order to obtain the benefit of the principal place of residence
exemption, to establish that the business conducted at the residence is
primarily conducted elsewhere, and

(c) transfer various existing provisions that restrict the operation of the principal
place of residence exemption so that those provisions appear in the same part
of the Act as the exemption itself.

The relevant amendments are set out in Schedule 2 [5]–[7] and [30]–[34].

Concession for land-related property that has not significantly
increased in value
A vendor duty exemption applies to the sale of land-related property if the dutiable
value of the land-related property has not increased, since it was acquired, by more
than 12%. A concession applies for increases in value of not more that 15%.

The amendments make it clear that if a vendor acquired a beneficial interest in
land-related property before acquiring a legal interest in the property, the vendor is
considered to have acquired the property when the vendor acquired the beneficial
interest. An example of this situation is where a person acquires a beneficial interest
in land-related property by entering into an agreement for sale or transfer of the
land-related property as purchaser or transferee, and subsequently acquires the
land-related property by transfer. In such a case, the person will be taken to have
acquired the land-related property when the agreement for sale or transfer was
entered into. The dutiable value of the land-related property at that date will be the
relevant value for the purpose of applying the vendor duty exemption provision.

The amendments provide that if a vendor otherwise acquires separate interests in
land-related property on separate occasions, the vendor acquisition date in relation to
that property is considered to be the earliest date on which the vendor acquired any
interest in the property, other than an interest that has already been transferred by the
vendor. However, if the vendor disposes of the vendor’s entire interest in the
land-related property, the vendor duty transaction may be assessed as if the vendor
had disposed of separate interests in separate transactions.

Amendments also make it clear that if a person acquires land, and the form or
description of the person’s title to the land changes (for example, because of a
subdivision), that change in the title is to be disregarded. That is, the date on which
the person acquired the land is to be determined as if the vendor’s title had not
changed.

See Schedule 2 [9]–[14].

Schedule 2 [8] makes an amendment by way of statute law revision.

Exemption for sale of new or substantially new buildings
At present, a sale or transfer, or transfer, of land on which there is a vendor
constructed building that is new or substantially new is exempt from vendor duty.

Restrictions apply if the land has previously been occupied or transferred. The
amendments make it clear that, if the building contains strata lots, those restrictions
apply if the strata lot the subject of the sale or transfer has previously been occupied
or transferred. That is, it does not matter if other parts of the building have been
occupied or sold.

Additional amendments are made to ensure that a reference to the completion date in
respect of a building is, in relation to a building containing strata lots, a reference to
the completion date of the strata lot the subject of the sale or transfer.

The relevant amendments are set out in Schedule 2 [15] and [35].

Exemption for improved vacant land
The sale or transfer of improved vacant land is exempt from vendor duty. The
amendments provide that rehabilitation works (in addition to remediation works)
required under a development consent and carried out at the vendor’s expense are
considered to be an improvement to vacant land. The amendments also define
rehabilitation works and remediation works. See Schedule 2 [16] and [18].

The amendments make it clear that the continuing presence on land of certain
structures that have been preserved for their heritage significance does not prevent
the land from being regarded as vacant land, if the Chief Commissioner is satisfied
that the land is substantially vacant. See Schedule 2 [17].

Exemption for compulsory acquisitions of land
A vendor duty transaction that gives effect to an acquisition of land by compulsory
process in accordance with the Land Acquisition (Just Terms Compensation) Act
1991 is exempt from vendor duty. The amendments extend this exemption so that
vendor duty is not chargeable on the following:

(a) a transaction that gives effect to an acquisition of land by agreement, if the
Land Acquisition (Just Terms Compensation) Act 1991 applies in respect of
the acquisition,

(b) a transaction that gives effect to a dedication of land required by a consent
authority under section 94 (Payment towards provision or improvement of
amenities or services) or 94F (Conditions requiring land or contributions for
affordable housing) of the Environmental Planning and Assessment Act 1979,

(c) an agreement for the sale or transfer, or transfer, of land that is intended to be
used for affordable housing, if the transaction is of a kind approved by the
Minister administering Part 4 of the Environmental Planning and Assessment
Act 1979 after consultation with the Treasurer.

See Schedule 2 [19].

Exemption for land subject to conservation agreements
An exemption from vendor duty applies to the sale or transfer of land if the land is
subject to a conservation agreement under the National Parks and Wildlife Act 1974
or a trust agreement under the Nature Conservation Trust Act 2001. An amendment
restricts this exemption to an agreement that is expressed to remain in force in
perpetuity. See Schedule 2 [20].

Interim payment of duty
The amendments extend to vendor duty transactions existing arrangements for the
interim payment of duty in cases where the Chief Commissioner is unable to
immediately ascertain the duty payable in respect of a transaction. The relevant
amendments are set out in Schedule 2 [21], [22] and [28]. Schedule 2 [3] is a
consequential amendment.

Exemptions for charitable and benevolent bodies
At present, certain transactions in favour of charitable and benevolent bodies are
exempt from duty under the Principal Act. The amendments extend this exemption
to certain trust instruments relating to unidentified property and non-dutiable
property. See Schedule 2 [23] and [25].

In certain cases in order for the exemption to apply the property that is the subject of
the transaction must be used or intended to be used by the charitable or benevolent
body for certain exempt purposes. The amendments allow a partial exemption to be
claimed in respect of land that is used or to be used partly for an exempt purpose and
partly for other purposes. See Schedule 2 [27].

Schedule 2 [24] and [26] make amendments, by way of statute law revision, which
ensure all the relevant exemption provisions are consistent.

Premium property duty—options entered into before mini-Budget
An amendment provides that premium property duty will not apply to a dutiable
transaction that results from an option granted before 7 May 2004. See Schedule 2
[29].

Note: If this Bill is not modified, these Explanatory Notes would reflect the Bill as passed in the House. If the Bill has been amended by Committee, these Explanatory Notes may not necessarily reflect the Bill as passed.

 

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