NSW Budget 2023-24 tax highlights

5 minute read  20.09.2023 Nathan Deveson, Rebecca Barbour, Olivia Fairbank, Lucy Greenwood, Gary Choy

Significant stamp duty and land tax changes were announced by the NSW Government in its 2023-24 Budget.

Key takeouts

  • Duty will be payable on a 20% acquisition in a private landholding trust. The registration of wholesale unit trust schemes has been revived and these will retain the existing 50% acquisition threshold.
  • Corporate reconstruction relief will change from a 100% exemption to a 90% concession (i.e. 10% of the duty is still payable).
  • All persons who use and occupy land as their principal place of residence must together own at least a 25% interest in the land to be eligible for the principal place of residence land tax exemption.

The Treasury and Revenue Legislation Amendment Bill 2023 (NSW) (Bill) was introduced into Parliament on 19 September 2023. The Budget measures announced by the NSW Government are submitted to be 'modest changes to improve integrity and fairness in the tax system and close loopholes'. The changes to the duty implications of corporate restructures and private unit trust investment will closely align NSW with the position in Victoria.

Our summary of the headline issues is set out below.

Duty will be payable on a 20% acquisition in a private unit trust scheme

The acquisition (or holding) of an interest of at least 20% in a private unit trust scheme (on an associate and aggregated transaction inclusive basis) will be liable to duty, down from the current 50% acquisition threshold. The acquisition threshold for private company landholder will remain at 50%, and for public landholders will remain at 90%.

Under the amendments, a private unit trust scheme will be a unit trust scheme other than a public unit trust scheme or a unit trust scheme that is registered under a proposed new division of the Duties Act 1997 (NSW) (Duties Act) as a wholesale unit trust scheme. For registered wholesale unit trust schemes, the existing acquisition threshold of 50% will apply rather than the announced 20% threshold, as is the case in Victoria (transitional provisions apply). This is a case of history repeating – similar provisions regarding wholesale trust and differentiated thresholds were previously part of the Duties Act and were perceived by many to create inefficiencies in capital raisings – these were consequently abolished in 2009.

In our view, and in contrast with the position in Victoria, CCIVs may have the benefit of the current 50% acquisition thresholds for private corporations, rather than the 20% threshold for private unit trust schemes.

The amendments also propose a change to the linked entity rules for tracing property. The current 50% threshold is proposed to be reduced to 20% (like Victoria). Entities need only have an entitlement (directly or indirectly) to at least 20% of the property of a downstream entity on winding up in order for the downstream entity’s land holdings to be attributed to it.

These changes will apply to acquisitions made from 1 February 2024 unless the acquisition arose from an agreement or arrangement entered into before 19 September 2023.

Corporate restructure relief to operate as a concession

Currently under the Duties Act, a corporate reconstruction exemption exists for corporate reconstruction and corporate consolidation transactions.

The Bill proposes to remove the 100% exemption and replace it with a concession which instead imposes a duty liability for 10% of the duty otherwise payable on the transaction. This move from a 100% exemption to a 90% concession is similar to the position in Victoria. One key difference between the NSW proposal and the Victorian position is that an exemption may be available in Victoria for restructure transactions that involve more than one restructure step. In particular, a full duty exemption (or duty credit) may be available in Victoria for later steps in a corporate restructure, if such steps occur within 30 days of an earlier transaction step for which the duty corporate reconstruction concession has been granted, and the later steps concern the same dutiable property or underlying land holdings.

The 90% concession will apply to transactions occurring on or after 1 February 2024. However, the full exemption will continue to operate after this date if a section 273F application is lodged on or before 1 April 2024 and the transaction arose from an agreement or arrangement entered into before 19 September 2023.

Eligibility for land tax exemption for principal place of residence

A key change to the Land Tax Management Act 1956 (NSW) proposed by the Bill is to impose a minimum ownership requirement in order to access the principal place of residence land tax exemption. From 1 February 2024, a person is not entitled to a principal place of residence exemption in relation to land unless all the persons who use and occupy the land as a principal place of residence together own at least a 25% interest in the land.

However this does not apply:

  • until 31 December 2025 for individuals who collectively have an existing stake less than 25% in the property; and
  • to home buyers who are participants in a shared equity scheme that is approved by the Chief Commissioner under section 281 of the Duties Act.

Increased compliance

The Government has also signalled an increased focus on compliance. To this end, the Bill confirms the power of the Chief Commissioner of State Revenue to remit interest and introduces a new power for the Chief Commissioner to issue guidelines about how interest must be remitted. We expect that Guidelines will be issued by Revenue NSW shortly.

Further, the Government announced a further investment of $111.1 million over the next 4 years to boost tax compliance activities with the expectation that this will increase payroll tax revenue by $337 million, land tax revenue by $225.5 million and transfer duty revenue by $87.5 million over the four years to 2026-27.

Please contact our team if you would like to discuss the impacts of any of these issues in more detail.