New South Wales land rich vendor duty

12 November 2004

New legislation has been introduced in New South Wales to impose land rich vendor duty. If passed in its current form, particular vendors disposing of an interest in a land rich landholder will incur a liability to duty at 2.25 per cent.
The Duties Amendment (Land Rich) Bill 2004 (Bill) was introduced to the New South Wales Parliament on 10 November 2004. Significantly, the Bill proposes to amend the Duties Act 1997 (NSW) (Act) with effect from that date to introduce vendor duty on dispositions by particular persons of an interest in a land rich land holder. This amendment is one which was foreshadowed with the introduction of vendor duty as part of the New South Wales mini-budget in May 2004, and is in addition to significant amendments to the land rich provisions made in November 2003.

The duty proposed to be imposed is in addition to land rich duty currently payable (at rates of up to 5.5 per cent) by a purchaser who makes a relevant acquisition in a land rich land holder.

Duty on relevant disposal
The amendments proposed by the Bill seek to impose duty on the disposition of any interest in a land rich landholder made by a 'significant interest holder' in the landholder (relevant disposal). Importantly, the relevant criterion for the imposition of duty is directed at the person making the disposition, rather than the size of the interest disposed of.

A significant interest holder is a person who has a 'significant interest' in the landholder or had such an interest any time within the three years preceding the disposition (the extent of the interest held is determined by aggregating any interest held by the person and associated persons of the person). A transitional provision limits that three-year period to start from 10 November 2004. This means a person who held a significant interest in the last three years but sold down the interest below that level before these amendments will not be liable on subsequent dispositions.

The concept of a significant interest is the same as that which applies to the charging of land rich duty on a relevant acquisition. For a landholder that is a private unit trust scheme, a significant interest is an entitlement to 20 per cent or more of the property distributed by the landholder in the event of a distribution of all property of the landholder. In the case of other landholders (namely a private company and a wholesale unit trust scheme), that percentage is 50 per cent.

In effect, and by way of example, a purchaser acquiring a significant interest in a land rich landholder will be liable to land rich purchaser duty (at up to 5.5 per cent) on the acquisition; on disposing of any of that significant interest, that person as vendor will be liable to land rich vendor duty on the relevant disposal (at 2.25 per cent), subject to the availability of any exemption.

The duty chargeable on a relevant disposal is imposed at 2.25 per cent on the proportion of the unencumbered value of all land holdings of the landholder in New South Wales that is represented by the interest disposed of.

Some points worthy of particular mention:

• Different criteria apply for the imposition of duty on a 'relevant acquisition' and 'relevant disposal' such that it is not necessarily the case that a transaction that is a relevant acquisition will also be a relevant disposal, or vice versa. In other words, the new duty proposed by the Bill will be imposed on some transactions which are not otherwise subject to land rich duty under current legislation.
• Registration of a private unit trust scheme as an imminent public unit trust scheme or an imminent wholesale unit trust scheme will not afford protection against the imposition of land rich vendor duty (although such trusts are protected with respect to land rich purchaser duty chargeable on a relevant acquisition).
• The 'quarantining' of an interest in a landholder acquired when the landholder did not hold land in New South Wales for the purpose of determining whether a relevant acquisition is made does not apply for the purpose of determining whether a relevant disposal is made.
• Where a person makes a relevant disposal, associated persons of that person are prima facie jointly and severally liable with that person for the payment of duty.

Exemptions and concessions
The Bill contains particular exemptions for land rich vendor duty, including:

• Where a person makes a passive disposal over which the person and any associated person has no control and for which the person does not receive any consideration.
• Where the transfer of the land would have been exempt from vendor duty by virtue of an exemption for farms, improved vacant land and new or substantially new buildings (though a person can rely on this last-mentioned exemption in relation to only one disposal by that person or an associated person).
• Where the value of the landholding at the disposal date (disregarding improvements made after the disposer acquisition date) does not exceed the value of the landholding at the disposer acquisition date by more than 12 per cent (a concession is available where the increase in value is between 12 and 15 per cent). This exemption corresponds to that available for vendor duty on the sale of land related property. For the purpose of this exemption, different parcels of land of a landholder are treated separately and specific rules apply for determining the disposer acquisition date.

The drafting of the passive disposal exemption is such that trusts will technically be unable to satisfy the conditions. However, the Commissioner does have a discretionary exemption where the imposition of vendor duty would not be 'just and reasonable'.

The Bill also contains exemptions for land rich vendor duty which correspond to those currently available for land rich purchaser duty. In addition, duty concessions have been introduced for disposals securing financial accommodation and buy back arrangements providing a liquidity mechanism for property trusts.

The notable lack of any exemption or concession for the syndication of interests in a unit trust scheme (in circumstances where the charging provisions are directed at significant interest holders and where there is no quarantining of interests acquired before the landholder acquired any land) is likely to have a significant impact on the property industry.

An important vendor duty exemption not replicated for land rich vendor duty is the sale of business exemption. That vendor duty exemption applies where the land represents less than 60 per cent of the total dutiable property the subject of the business sale. However, such an exemption is unnecessary for land rich vendor duty as the provisions apply only if land represents more than 60 per cent of the total property of the landholder (whether dutiable property or not).

Commencement and transitional provisions
The Bill is drafted so that the amendments above will commence with effect from introduction of the Bill to Parliament on 10 November 2004. However, they will not apply to disposals pursuant to an agreement entered into before 7 May 2004 (the date of the budget announcement).

These transitional provisions may still catch taxpayers unaware, as arguably the legislation will impose vendor duty on transactions entered into on or after 7 May 2004 and completed before 10 November 2004, where the share or unit disposal is not registered until on or after 10 November 2004.

Other amendments
Other amendments proposed by the Bill include:

• providing for a system of registration for imminent wholesale unit trust schemes and imminent public unit trust schemes, and requiring registration of a wholesale unit trust scheme
• amending the vendor duty provisions to apply the new building and substantially new building exemptions to the sale of individual lots in the building, and
• a provision preventing a cascading of GST and vendor duty.

This article was written by Jinny Chaimungkalanont, Solicitor.

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