From 1 December 2009, significant changes to the Duties Act 1997 (NSW) (Duties Act) will come into force by reason of the State Revenue Legislation Further Amendment Act (No 2) 2009 (NSW) (Amending Act). The Amending Act makes the following important changes:
- a person who acquires or holds an interest in a landholder as a creditor may be liable for landholder duty;
- interests in a landholder acquired or held by a person for different trusts will be treated as if they were acquired or held independently by separate persons; and
- the $2 million landholder threshold test is amended by replacing references to unencumbered value with references to ‘threshold value’.
‘Interest’ held by a creditor
Before the Amending Act, s.150(1) of the Duties Act provided that a person held an interest in a landholder if the person was entitled (otherwise than as a creditor or other person to whom the landholder is liable) to a distribution of property from the landholder on a winding-up of the landholder or otherwise.
From 1 December 2009, the concept of an ‘interest’ in a landholder will extend to any entitlement to a distribution of property, including the payment of money. Importantly, this will include the interest of a creditor, other than a ‘debt interest’ under Division 974 of the Income Tax Assessment Act 1997 (Cth), which is specifically excluded.
The effect of the amendment is ‘to make persons who acquire or hold an interest in a landholder as a creditor liable for landholder duty in certain circumstances’.
Interests held by a trustee
Prior to the introduction of the Amending Act, a person with an ‘interest’ in a landholder was the person entitled to receive distributions from the landholder. Accordingly, in the absence of a specific provision addressing the position of trustees, where a trustee of a trust acquired an interest in a landholder, it was the trustee and not the beneficiary of the trust that was the acquirer of the interest.
From 1 December 2009, any interests in a landholder acquired or held by a person for different trusts will be treated as if they were acquired or held independently by separate persons. Interests in a landholder acquired by a life company for different statutory funds will also be treated as interests of separate persons.
Landholder threshold
The Amending Act changes the way the $2 million landholder threshold test is applied by replacing the unencumbered value concept with a ‘threshold value’ concept. Under the newly amended provisions, the threshold value of a land holding will in most cases be the land value of the land as entered in the Register of Land Values kept by the Valuer-General under s.14CC of the Valuation of Land Act 1916 (NSW) (‘registered land value’) as at 1 July in the previous year. Under that Act, the land value is essentially the market value of the unimproved land (and is the same value that is used for land tax purposes). Particular rules apply to a proportionate interest in land holding, strata lots and the interest of joint tenants. The default position (where a value cannot be obtained under the specific rules, for example a leasehold interest in land) is that the unencumbered value test will continue to apply. For example, if a company has landholdings of $5 million, being $1 million unimproved land (as recorded in the Valuer-General’s Register) and $4 million in buildings, the company would be a landholder before 1 December 2009. From 1 December 2009, that company would not be a landholder.
Other changes
The Amending Act makes numerous other changes to the Duties Act, including:
- re-characterising the point in time at which a liability to duty arises; and
- clarifying the position on whether certain licences, leases and rights under the Mining Act 1992 (NSW), Conveyancing Act 1919 (NSW), Petroleum (Onshore) Act 1991 (Cth), and Petroleum (Offshore) Act 1982 (Cth) provide the holder with an interest in land for the purposes of the Duties Act.
This article was written by Richard Giannone, Partner, Sydney.
More information
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