The New South Wales (NSW) Government released on 26 August 2022, the Duties Regulation 2022 (Regulation) under the Duties Act 1997 (Duties Act).
The Regulation has retrospective operation from 19 May 2022.
The Regulation follows on from amendments made to the Duties Act on 19 May 2022 that broaden the tax base by including as a new dutiable transaction:
“…another transaction that results in a change in beneficial ownership of dutiable property, other than an excluded transaction”.
As the “change in beneficial ownership” provision is extremely broad, the Duties Act expressly lists certain “excluded transactions”.
The purpose of the Regulation is to prescribe additional transactions as “excluded transactions”.
This is a welcome development providing comfort to taxpayers that certain currently non-dutiable transactions remain outside this head of dutiable transaction.
Additional “Excluded Transactions” under the Regulation
The Regulation prescribes the following as additional “excluded transactions” from being a dutiable “change in beneficial ownership of dutiable property”:
- a change in default beneficial interests under a discretionary trust, including a change to the default beneficial interests of default beneficiaries or the addition or removal of a default beneficiary
- a change in beneficial ownership of dutiable property that occurs under a testamentary instrument or the laws of intestacy, or otherwise by operation of law on the death of a person
- the grant or termination of a life estate in dutiable property for no consideration
- the variation or surrender of an easement for no consideration
- the grant, creation, variation or extinguishment of a mortgage, charge or other security over land
- the creation, variation or surrender, for no consideration, of a tenant’s interest in fixtures that are fit-out for commercial premises
- a change in tenancy under a lease for no consideration
- the change, for no consideration, in the holding of property from joint tenants to tenants in common in equal shares or vice versa
- the grant, variation, cessation, revocation or cancellation of a water right
- the expiry, extinguishment or merger of one or more leases for no consideration
- the variation or extinguishment of a profit a prendre for no consideration. and
- the surrender of a security interest for no consideration.
While it is useful to receive confirmation that these transactions are not subject to duty, the number of “excluded transactions” listed both in the 19 May 2022 amendments and in these Regulation demonstrates just how far reaching and unclear the meaning and intended application of the “change in beneficial ownership” provisions are.
General Statement from Revenue NSW – Leases
Revenue NSW released on 17 August 2022, a general statement in relation to whether the grant of a lease is dutiable as a change in beneficial ownership.
The announcement largely refreshed known information, stating that, generally, leases where rent is paid or payable will not be liable for duty, provided there is no premium or consideration for the grant of the lease.
The announcement also foreshadowed that the Regulation and a subsequent Commissioner’s Practice Note would include a “detailed explanation” of the duty consequences of lease transactions.
Await Commissioner’s Practice Note
Taxpayers will need to wait for the publication of the Commissioner’s Practice Note to better understand the Commissioner’s views on the intended breadth and application of the “change in beneficial ownership” provisions.
Until such time as the Commissioner’s Practice Note is published, taxpayers that are involved in transactions with NSW assets, in particular leases, should seek specific duty advice.
This is particularly the case because commonly used, market-standard structures which were not subject to duty, are now potentially subject to duty.
And while the (staggered) release of the “excluded transactions” and publications from Revenue NSW (Guidelines and General Statement) are of assistance, there still remains considerable uncertainty for taxpayers on current deals because of the delay in the Commissioner’s Practice Note.
We will issue a further update as soon as there are further developments.
For advice and assistance in relation this, please contact our team.