ASF TAKEAWAYS: The State budgets generally do no warrant much attention, but the Minns Labour Government have delivered a budget that includes a raft of changes affecting small businesses, corporate restructures and landholder duty changes. With some laws meant to come into effect from 1 February, it might be time to get the skates on with any restructure planning that was being contemplated.
WHAT ARE THE KEY MATERIAL CHANGES?
The NSW Budget for 2023-24 was handed down on 19 September 2023, with a focus on investing in infrastructure, education, and healthcare. The budget has a number of material amendments (some of which have subsequently already been passed into law) such as;
Replacement of the corporate reconstruction and corporate consolidation exemption;
New significant interest acquisition threshold for private trusts; and
Increase to the ownership threshold for claiming a principal place of residence for land tax purposes.
Stamp duty concessions on corporate restructures
The current 100% exemption from duty for eligible corporate reconstruction and consolidation transactions will be replaced with a concession of 10% of the duty that would otherwise be payable. This change is expected to come into effect on 1 February 2024 (the Treasury and Revenue Legislation Amendment Bill 2023 (NSW) was passed into law on the 27th of Sept 2023).
The following transitional rules will apply:
The full exemption will continue to apply to transactions occurring before 1 February 2024.
The full exemption will also apply to transactions occurring on or after 1 February 2024 if an application for the exemption is made on or before 1 April 2024 and the transaction arose from an agreement or arrangement entered into before 19 September 2023.
National exemptions:
NSW – No – 90%
VIC – No – 90%
QLD – full exemption
WA – full exemption
SA – full exemption
TAS – full exemption
NT – full exemption
ACT – full exemption
Broadly, corporate reconstruction and corporate consolidation are two types of business transactions that involve the transfer of assets between companies. It is commonly used methods to address asset protection issues that may not have been considered by advisors at inception, in context of pre-sale restructures where only one part a business/assets will be sold or to recover from bad advice!
Corporate reconstruction is a transaction where dutiable property, such as land, is transferred between members of a corporate group. This is often done to satisfy a financier's security requirements or to reposition assets within a group following a business restructure.
Corporate consolidation is a transaction where a new company or unit trust is interposed into an existing chain of entities without changing the ultimate beneficial ownership of the group's assets. This is often done to simplify the group structure or to create a more tax-efficient structure.
Both corporate reconstruction and corporate consolidation are common transactions and occur routinely. They are often used in the context of pre-sale restructures where only one part of a business, or one part of a group's total assets, will be sold.
Landholder duty changes
The NSW Budget 2023-24 also includes a number of changes to landholder duty.
Reduction in the threshold for private unit trusts: The landholder duty threshold for private unit trusts will be reduced from 50% to 20%. This means that private unit trusts that acquire a significant interest (being 20% or more) in a NSW landholder will be liable for landholder duty.
Extension of the linked entity rules: The linked entity rules for landholder duty will be extended to include entities that are linked by a 20% interest, rather than the current 50% interest. This means that more entities will be caught by the landholder duty provisions.
These changes come into effect on 1 February 2024.
The following transitional rules will apply:
The changes will not apply to acquisitions that are completed before 1 February 2024.
The changes will also not apply to acquisitions that are completed on or after 1 February 2024 if the acquisition arose from an agreement or arrangement entered into before 19 September 2023.
The proposed changes are intended to broaden the scope of the landholder duty provisions and to discourage the use of private unit trusts for tax minimisation purposes.
The following thresholds will remain the same:
Threshold for private companies will remain at 50%
Threshold for public companies will remain at 90%
Threshold for listed trusts will remain at 90%
Threshold for widely held trusts will remain at 90%
Threshold for wholesale unit trust or imminent wholesale unit trust will remain at 50%.
National thresholds for private trusts:
NSW – 20%
VIC – 20%
QLD – Generally, 0% subject to some exceptions
WA – 50%
TAS – 50%
SA – 50%
ACT – 50%
NT – 50%
Increase to the ownership threshold for claiming a principal place of residence for land tax purposes
The principal place of residence land tax exemption will only be available to a person occupying the property as their principal place of residence who owns an interest of at least 25% in the property. This will remove a loophole whereby persons with as little as a one percent stake in a property were able to claim the principal place of residence land tax exemption.
That means that all persons who use and occupy the land as a principal place of residence must own at least 25% interest in the land to be able to claim the PPR, which renders commonly used strategies by medical practitioners and other risk orientated professional.
A person is liable for annual land tax where the property owned as at 31 December in NSW, excluding exempt land, exceeds the land tax threshold ($969,000 for the 2023 land tax year). The PPR exemption is available for any person with an interest in a property who "uses and occupies" the property as their PPR. A person with as little as 1% interest in a property is able to claim the PPR land tax exemption.
Currently, NSW land tax assessments are not issued to owners that hold property that are exempt from land tax. Property owners that are no longer eligible for the PPR exemption must register for land tax. Joint owners of NSW property should review their stake in the property with their advisers having regard to their family's estate planning, funding, and lifestyle objectives.
If you are considering undertaking a corporate restructure or acquiring a significant interest in a NSW landholder, it is important to seek professional advice to ensure that you understand the implications of the proposed changes and to ensure that your transaction is structured in a way that minimizes your stamp duty and landholder duty liability.
If you want more details on any particular measure, and how it will impact your business or you personally, please reach out to the ASF team.