Australia: Navigating stamp tax (duty) rules in 2022
Potential traps that arise across Australia because of lack of uniformity in stamp tax (duty) rules
Potential traps that arise because of lack of uniformity in stamp tax rules
There are no uniform stamp tax (duty) rules across Australia. While there are similarities for certain stamp tax issues across different jurisdictions, the lack of uniformity creates potential traps for those owning property.
Broadening of stamp tax base
Over time, there has been a gradual broadening of the stamp tax base, including by extending what is dutiable property and what is a dutiable transaction. These changes always revolve around land/property.
- The introduction of specific dutiable transactions involving the taxing of the transfer or nomination of call options in New South Wales (NSW) for valuable consideration. The taxing position varies whether there is just a call option or a put and call option:
- When there is just a call option, stamp tax is generally calculated on the valuable consideration at rates up to 5.5% for the transfer/nomination of the option and on the transfer of the land upon exercise on the dutiable value of the land (noting there are certain netting off/deduction provisions to consider).
- When there is both a put and call option, the provisions, in effect, operate to trigger two lots of tax at rates up to 5.5% on the dutiable value of NSW land once on the transfer/nomination of the option for valuable consideration and another on the transfer of the land itself.
- The introduction of foreign purchaser surcharge tax for foreign persons that acquire residential property, at rates of up to 8%. Further, an annual surcharge land tax of up to 2% is also charged on the land held at 31 December of each year. In some jurisdictions, the surcharged land tax is not limited to residential property. Further, who is a foreign person varies from state to state, and an Australian entity that is owned/controlled by a foreign person can be treated as a foreign person for these rules.
- There has been a move from the traditional characterisation of chattels versus fixtures to taxing anything fixed to the land in the landholder tax context. This affixation to land can have profound implications on transactions, given that assets that are chattels at law can be treated as landholdings by virtue of a physical connection/affixation. This allows transactions that may have fallen out of the “net” in the past to now be caught.
The broadening of the tax base often arises in response to court decisions (e.g., the introduction of the NSW option provisions) or when there has been a change of government policy (i.e., the introduction of foreign purchaser surcharges). It is anticipated that as state government budgets continue to remain under pressure, the broadening of the stamp tax base could continue.
Lack of uniformity potentially creates traps for taxpayers
Despite the re-write of the stamp duty legislation in the early 2000s in many jurisdictions, stamp tax legislation is not uniform across Australia. There are provisions that are unique to a particular state that do not apply in others. There is also a risk that other states may look to implement similar provisions in their jurisdiction, so a familiarity and understanding of these rules are particularly important in the real estate sector.
- Queensland: Trust acquisition provisions
Queensland has trust acquisition duty provisions that operate to treat dealings (transfer, issue, redemption etc.) in the units of a trust as dealings in the underlying Queensland dutiable property. These provisions do not just focus on land or tangible assets and can apply to Queensland intangible assets (like goodwill apportioned to Queensland). Further, taxpayers are to trace through downstream trusts and partnerships to determine if there is any underlying Queensland dutiable property.
Unless the trust falls into specific public unit trust scheme categories, there is no minimum taxing threshold. This means a 1% dealing in a unit trust holding Queensland dutiable property is taxed as a 1% dealing in the Queensland dutiable property.
There have been unfortunate situations when taxpayers have inadvertently triggered multiple lots of Queensland trust acquisition duty. As clients often hold land in unit trusts, managing how these provisions may affect them will be important where Queensland land or other dutiable property is involved.
The public unit trust concessions (which can increase the acquisition threshold to 50% and even 90%) are quite specific so it is important to consider the requirements as coming within these provisions can be beneficial. Ongoing, it is also important to manage the public unit trust status of a trust as this can have an impact for the investors and the unit trust (trustee) itself.
- Victoria: Economic entitlement provisions
Victoria has broad economic entitlement provisions in relation to arrangements involving land where the unencumbered (market) value is above $1 million.* In broad terms, these provisions effectively operate to tax situations when under the arrangement, a person is directly or indirectly entitled:
- To receive the income, rents or profits derived from the relevant land
- To participate in the capital growth of the relevant land, or
- To participate in the proceeds of sale of the relevant land
The implication of these provisions is to bring into the stamp duty net contractual arrangements that do not involve land in the traditional way such as a sale or transfer. That is, a taxpayer can still trigger a liability when there is no dealing in an interest or estate in land. When looking at Victorian land and contractual arrangements, developers need to be aware of these provisions to manage any stamp duty risk.
As described above, there are provisions that are unique to a respective state and could cause taxpayers to fall into a trap—particularly if they have not invested there recently. Accordingly, taxpayers need to consider stamp tax advice for all prospective property/land transactions. This review ideally would be undertaken together with other key taxes like Australian income tax and goods and services tax (GST).
For more information, contact a KPMG tax professional in Australia:
Robert Nguyen | +61 2 9273 5414 | email@example.com
Jenny Lee | +61 2 9346 5692 | firstname.lastname@example.org
Sarah Shaw | +61 2 9335 8730 | email@example.com
*$ = Australian dollar
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