Australia: “Excluded transactions” in beneficial ownership (New South Wales)

The New South Wales (NSW) government on 26 August 2022 released a regulation—the Duties Regulation 2022 (Regulation) under the Duties Act 1997 (Duties Act)— confirming that certain transactions remain excluded from being a dutiable (taxable) change in beneficial ownership.

The regulation is effective retroactively from 19 May 2022.

The regulation follows amendments made to the Duties Act in May 2022 that broadened 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.”

The regulation lists the following “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 expiration, extinguishment, or merger of one or more leases for no consideration
• The variation or extinguishment of a profit a prendre for no consideration
• 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 this regulation demonstrates just how far reaching and unclear the meaning and intended application of the “change in beneficial ownership” provisions are.

Revenue NSW on 17 August 2022 released 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 when 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.

Taxpayers may 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 the Commissioner’s practice note is published, taxpayers that are involved in transactions with NSW assets, in particular leases, may need to seek specific duty advice.

This is particularly the case because commonly used, market-standard structures that 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.

Read a September 2022 report prepared by the KPMG member firm in Australia