Changes to Duties and Land Tax tabled in NSW to impact M&A deals and discretionary trusts

Yesterday, the NSW Government tabled the State Revenue Legislation Further Amendment Bill 2019 which proposes material changes to the Duties and Land Tax regimes in NSW. The most important changes are:

Landholder duty regime broadened – now to catch many more M&A deals

It has been the case that many M&A deals, where the underlying business holds land and/or leases in NSW, could be implemented without incurring landholder duty. The changes move the dial considerably and will:

  • Replace the $2m land threshold from being assessed on the unimproved value of freehold land, to the market value of the freehold land (i.e. now including the value of buildings).
  • Broaden the “land” test from common law concepts such as fixtures to now include things “fixed to land”. 

These changes will now catch, for example, businesses operating on leases but with fitouts exceeding $2m as well as manufacturing sites with expensive plant and equipment fixed in some way to the building. This broadens the scope of landholder duty from what it was originally intended to catch (i.e. using indirect transfers of land to avoid transfer duty) to now potentially applying to the sale of what one might not think of as a “landholding” business.

For example, the sale of a medical practice operating on leases will now need to count any expensive medical equipment which is “fixed” to the land by more than its own weight (even if just for stability or security purposes). Not only that, if the transaction is subject to landholder duty, duty is chargeable not only on the fixed items, but also all goods (other than excluded goods) located in NSW.

While these changes bring NSW into step with most other States and Territories, it is an expansion of the landholder duty base nonetheless.

Foreign surcharges – time is running out to amend discretionary trusts

Further to our alert last week on the NSW land tax amnesty, taxpayers have until 31 December 2019 to change their trust deeds such that they are not inadvertently deemed to be “foreign persons”. The changes make it clear that all discretionary trusts are “foreign persons” for duties and land tax surcharge purposes unless the trust deed prevents a foreign person from being a beneficiary of the trust. While this was already the practice of the NSW government, the government has been quite lenient in allowing taxpayers to change their trust deeds until now.

This directly affects trusts which have acquired residential land since 21 June 2016 or have held residential land for a land tax year from 2017 or later.

Surcharges can more than double the tax otherwise payable and is a material cost to buying or holding residential land in NSW.