The Western Australian State Taxation Review has announced further details of significant changes affecting companies, trusts and partnerships that hold land in Western Australia. The Western Australian Department of Treasury and Finance released its Final Report of the State Taxation Review on 23 May 2007. The Final Report takes account of feedback on the Interim Report that was released on 1 June 2006.
The most significant change to affect business is the proposed implementation of a ‘landholder model’. The Review recommends this as its highest priority for reform, on the basis that the proposal will broaden the tax base and allow conveyance duty rates to be reduced.
Current provisions
The Stamp Act 1921 has separate provisions for companies, unit trusts and partnerships.
Companies are subject to ‘land rich’ provisions, similar to those in other jurisdictions. The land rich provisions apply when a company has land in Western Australia worth at least $1 million, and when its global land holdings represent 60 per cent or more of its assets. Different rules apply depending on whether or not the company is registered in Western Australia and whether or not the company is listed on a stock exchange.
‘Look through’ provisions apply to unit trusts that have land in Western Australia. Unlike the land rich provisions for companies, there are no thresholds for these trust provisions to apply. The provisions include exemptions for widely held trusts and concessions for certain wholesale trusts.
If a partnership has a relevant connection with Western Australia, an acquisition of an interest in the partnership is also charged with duty. Duty on a partnership interest is based on the value of the interest grossed up for certain assumed liabilities. In contrast, the duty that applies to companies and unit trusts is based on a proportion of the value of the underlying land assets.
Proposed Changes
The proposed provisions will treat companies, trusts and partnerships as ‘entities’, and will apply the same tests to all entities.
As with the existing land rich provisions, a threshold test will apply to the entities. The entity (or its subsidiaries) must have Western Australian land of $2 million or more; however, there will not be any test relating to the percentage of assets that are land. For the purpose of this test, ‘land’ is proposed to be the same as the existing definition in the land rich provisions, which includes mining tenements and anything fixed to the land.
Duty will be charged when a person acquires a relevant interest in the entity. Acquisitions over time will be aggregated; presumably acquisitions by related persons will also be aggregated. Based on the level of control, a relevant interest will be 50 per cent or more in an unlisted entity or 90 per cent or more in a listed company or unit trust. This is similar to the current provisions for companies, but these thresholds do not currently apply to partnerships or trusts (other than some wholesale trusts).
Duty will then be calculated based on the proportionate value of the Western Australian land and chattels owned by the entity.
Implications
Under the landholder model, unit trusts will be treated more favourably than at present: only relevant acquisitions will be charged with duty, rather than all acquisitions. This will remove the need to distinguish between private trusts, public trusts and wholesale trusts. Also, the $2 million land threshold will be introduced. Similar benefits will apply to partnerships. These changes will improve consistency between entities, and will reduce compliance and administrative costs for taxpayers.
The Final Report also recommends that corporate reconstruction relief is extended to unit trusts, to further improve consistency between entities.
The Final Report says that the existing bias in the land rich provisions against mining companies will stop. However, this is not because mining companies will receive any benefit. Rather, removing the percentage land threshold will result in more companies being subject to duty. This will reduce the compliance costs for some companies in valuing non-land assets (to determine the percentage land threshold), but companies will still need to identify which assets are ‘land’ (as defined) and whether those assets have a value of $2 million or more.
The additional stamp duty payable in relation to these companies is intended to fund a general reduction in the rate of conveyance duty.
Draft legislation to ‘rewrite’ the existing Stamp Act is expected to be released for comment in early July. The draft is expected to include the new landholder regime and corporate reconstruction relief.
Matthew Stutsel, Partner, participates in a working group established by the Property Council of Australia to harmonise stamp duty provisions affecting property trusts, and chairs a working group to harmonise corporate reconstruction relief.
This article was written by Matthew Stutsel, Partner, Sydney.
More information
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