Recent changes to the New South Wales Duties Act mean more transactions are dutiable in that State from 19 May 2022. In this article, Brooke Bostock (special counsel) outlines the key changes and sends a warning to tread carefully given the uncertainty surrounding some of the new provisions.
In short, transactions that may not have been subject to duty previously may now be dutiable. Amendments to the Duties Act mean duty is now imposed on—
The new provisions impose duty on certain transactions that result in a change in beneficial ownership of dutiable property. This includes—
Duty is calculated on the dutiable value of the property when the change in beneficial ownership occurs. Duty is payable by the party who obtains the beneficial ownership or whose ownership increases.
Duty is now payable on the grant of an option to purchase land in NSW. This is because the grant of such an option is the creation of dutiable property and is a change of beneficial ownership under the new Duties Act provisions.
Duty is payable on the call option fee paid for the grant of the option. It is the grantee (ie the person to whom the option is granted) who should pay the duty. It should be noted:
The position in relation to put option agreements (which do not include a call option) is unclear. A put option (being an option to require another party to purchase land) is arguably not the grant of an option to purchase land in NSW. Therefore, it is not the creation of dutiable property and may not be dutiable. However, Revenue NSW’s consistent references to ‘put and/or call options’ in the guidance notes published so far mean the position is unclear.
The grant of an easement for consideration will now be dutiable in NSW. Duty will be assessed on the higher of the consideration and the unencumbered value of the easement.
A grant, renewal, or variation of a lease (if it creates an interest in land) for consideration may also be caught by the amendments to the Duties Act. This is inconsistent with existing lease provisions in the legislation which provide for duty to be calculated and payable, on any premium paid and not on the unencumbered value.
There is also a new provision imposing duty on the making of a statement that—
Duty is calculated on the dutiable value of the property (being the higher of the GST inclusive consideration or unencumbered market value of the dutiable property the subject of the trust) at the date of the acknowledgement of trust. Also:
These amendments were introduced as a direct response to a NSW Court of Appeal decision which narrowed the scope of the existing declaration of trust provisions in the Duties Act. The Court said a document which did not effect a transfer but merely acknowledged an existing legal position was not liable to duty. That is, a mere acknowledgement of an existing trust was not a declaration of trust and therefore not dutiable.
Arguably, the changes introduced have unintended consequences for taxpayers by widening the scope of dutiable transactions in relation to declarations of trust over dutiable property. In legal and financial services circles, there are two views on how these new provisions may operate.
On a broad view, the breadth of the language of the new provision may capture a broad range of transaction documents, such as custodian or bare trust agreements that identify how the dutiable property is held. It may also include routine documents, such as minutes of meeting, which refer to the trust. There are concerns documents containing words that may be construed as a declaration of trust, even if the trust is already constituted, may result in additional duty even when duty has already been paid on the acquisition of dutiable property by the trustee. On a narrow view, the new provision may only capture trusts that were not subject to duty when they were first declared, such as resulting trusts.
Given the uncertainty surrounding some of these new provisions, calls are being made for Revenue NSW to provide clarification. It is expected Revenue NSW will issue further guidance to clarify these new provisions by issuing revenue rulings and commissioner practice notes. We will be monitoring this situation and issuing updates.
Tread carefully. The amendments to the Duties Act mean the scope of transactions liable to duty in NSW has widened. The changes will also result in an increased administrative burden for taxpayers in lodging documentation for assessment.
It is likely Revenue NSW will issue regulations, guidance notes and public rulings to provide clarification and to address concerns and questions being raised. However, until then, taxpayers should carefully consider any proposed transactions in respect of dutiable property in NSW and whether such transactions will be subject to duty, even if only a nominal amount.