On 19 September, 2023, the New South Wales 2023-2024 State Budget was unveiled by the NSW Treasurer, the Hon. Daniel Mookhey MLC. Once the Treasury and Revenue Legislation Amendment Bill 2023 is approved, it is expected that the measures outlined in the Budget will come into effect from February 1, 2024.

Contained within the Bill are significant amendments aimed at aligning corporate reconstruction, consolidation exemption, and landholder duty provisions that aligns more closely with the stamp duty regulations framework in Victoria (VIC). A summary of these crucial changes is provided below.

Increase in fixed and nominal duty amounts

Fixed or nominal duty is currently charged in respect of various transactions throughout the Duties Act. These charges have been unchanged since 1 January 2009.  

From 1 February 2024, the following duty rates are subject to increase:

Reduction of acquisition threshold for private unit trust schemes

In NSW, if you are acquiring more than 50% of a private company or a unit trust that holds land (directly or indirectly) over the value of $2 million, landholder tax is applicable to the acquirer.

The new budget is introducing a novel criterion for substantial interest acquisition in private unit trusts.

Under the new regulations, revised benchmarks will govern holdings in private unit trusts acting as landholders. In most cases for private unit trusts, a 20% substantial acquisition threshold will be enforced.

The 50% threshold will persist for acquisitions concerning wholesale unit trusts or imminent wholesale unit trusts registered with Revenue NSW. The 50% acquisition threshold for private companies and the 90% threshold for public landholders remain unaltered.

Additionally, adjustments will be made to the standard for tracing property through 'linked entities' of a landholder, reducing it from 50% to 20%. These amendments to the landholder duty provisions will apply to acquisitions completed on or after February 1, 2024, unless they result from a prior agreement or arrangement entered into before the introduction of the amending legislation to Parliament.

Minimum ownership requirement for the principal place of residence land tax exemption

Under current regulations, land be exempt from land tax if one of multiple owners designates it as their principal place of residence, regardless of the extent of their ownership share. However, forthcoming amendments will require that individuals seeking this exemption own a minimum of 25% of the property while occupying it as their primary residence.

During the transitional phase, those currently benefiting from the principal place of residence exemption but holding less than a 25% ownership stake will retain this exemption for the 2024 and 2025 land tax years. Subsequently, starting from the 2026 land tax year, a minimum 25% ownership requirement will apply to maintain eligibility for this tax exemption.

Corporate Reconstructions and Consolidations Concession to replace Exemption

The Duties Act currently allows a corporate reconstruction exemption for corporate reconstruction and corporate consolidation transactions. The Bill seeks to replace the existing exemption with a concession that imposes a duty liability equivalent to 10% of the duty typically payable for such transactions.

Whilst the shift from exemption to concession is similar with the approach adopted in Victoria, it is important to note the distinction as the NSW Bill does not include a comparable exemption for subsequent transactions that are part of an arrangement with an earlier transaction eligible for relief.

In other words, if there are multiple transactions involving the same taxable property or underlying land holdings within 30 days of the initial eligible transaction, these subsequent transactions would not qualify for this relief.

The concession will be come into effect for transactions taking place on or after February 1, 2024.

However, the proposed transition rules allow for an exception, the exemption will continue to be available for transactions stemming from an agreement or arrangement made prior to the introduction of the amending legislation in Parliament, and for which an exemption application is filed and approved by April 1, 2024.

Key Takeaways:

From 1 February 2024,

• Land tax exemption is only applicable if a person occupying a property as their principal place of residence owns at least a 25 per cent interest in the property.

• Duty will be payable on acquisitions equivalent to 20% or more in private landholding trusts.

• Corporate reconstructions and consolidations implemented after 1 February 2024 will typically incur duty at concessional rate of 10%.

If you would like to discuss the above in further details, please reach out to our office.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*