State and territory budget announcements 2006–07

This note summarises the recent round of Budget announcements for the 2006–07 financial year and new legislation introduced to implement Budget announcements in all the states and territories:

New South Wales
Victoria
Queensland
Western Australia
South Australia
Tasmania
Australian Capital Territory
Northern Territory

New South Wales

The 2006–07 New South Wales (NSW) Budget was handed down on 6 June 2006. 

On 6 June 2006, the Duties Amendment (Abolition of State Taxes) Bill 2006 (Bill) was introduced into the parliament. This Bill was passed on 7 June 2006 and commences on 1 July 2006. It provides for the repeal or reduction of a number of state taxes (as announced prior to the 2006–07 Budget) and also makes significant changes to the mortgage duty provisions.

Summary of changes to stamp duty rates

• The grant of a lease with a premium will be a dutiable transaction, subject to duty at 5.5 per cent.
• Duty on the hire of goods will be abolished from 1 July 2007. 
• Duty on the rent component of leases will be abolished from 1 July 2008. 
• Duty on shares and units will be abolished from 1 January 2009 (although land rich duty will remain). 
• Mortgage duty will be halved from 1 January 2010 (from $4 per $1000 to $2 per $1000) and abolished on 1 January 2011. 
• Duty on the transfer of non-land business assets including statutory licences will be abolished from 1 January 2012.

Details of changes to mortgage duty — for advances made from 1 July 2006

Currently, a mortgage which does not secure property in NSW when it is executed is chargeable with mortgage duty only if it secures land within 12 months after it is signed.

Proposed change: In addition, a mortgage which does not secure property in NSW when it is first executed, but later attaches to any NSW property (other than listed shares or units) will attract mortgage duty. However, this only applies if the mortgage is part of an arrangement to secure specific property. This will be same as in Queensland and Western Australia.

Currently, the Duties Act does not distinguish between an ‘all moneys mortgage’ and a limited security. All mortgages are subject to duty on the amount of advances secured by the mortgage and recoverable under the mortgage. This means that limited securities are only subject to duty on the lower of the advances made, or the limit.

Proposed change: If the mortgage specifies a limit on the secured money, duty will be payable on that limit. Any increase in the limit will attract further duty.

On one view, a limit on the amount recoverable under a mortgage (as opposed to the amount secured) does not have any stamp duty effect. However, it is understood that in practice, the NSW Office of State Revenue will treat a limit on the amount recoverable as the limit on which to calculate duty.

Currently, the Duties Act apportions the duty payable on multi-state mortgages and mortgage packages. That apportionment is based only on Australian assets.

Proposed changes:

• The apportionment will include overseas assets as well as Australian assets—except as outlined below.
• Mortgage packages will initially include only mortgages executed within a 28-day period. Later securities will be treated as part of the package if a further advance is made. 
• A mortgage package may state a limit on the amount secured over NSW property. Duty will be payable on the lesser of that limit, or the NSW apportionment of the total advances secured. 
• A mortgage package may state a single limit on the amount secured over all Australian property. Duty will be payable on a proportion of the Australian limit, reflecting the ratio of NSW property to Australian property secured by the change.

Currently, collateral mortgages are only subject to a nominal duty of $10. A collateral mortgage must secure the same money as a mortgage that has been duly stamped in NSW or another state.

Proposed changes:

• The rate of mortgage duty in some states is being reduced from 1 July 2006 (commencing with a halving of the rate in Western Australia and Tasmania). If a security has been stamped in one of those states, it will not be possible to stamp a collateral security in NSW with only $10 duty.
• Instead, the collateral mortgage and the existing stamped instruments will be treated as a mortgage package. 
• However, the total amount of duty payable in NSW and elsewhere is capped to the amount of duty that would have been paid in NSW if there were no existing stamped instruments.

Victoria

There were no major changes to stamp duty announced in the 2006–07 Victorian Budget handed down on 30 May 2006.

Queensland

Land rich duty

In the 2006–07 Queensland Budget handed down on 6 June 2006, the following changes were announced to strengthen duty provisions relating to the acquisitions of majority interests in land rich corporations and land holding trusts (including some public unit trusts, but not widely held trusts):

• The land component threshold of a corporation’s total assets required to make it a land rich corporation will be reduced from 80 per cent to 60 per cent.
• The interest threshold which creates a dutiable acquisition will be adjusted from an interest of ‘more than 50 percent’ to ’50 percent or more’ for both land rich corporations and land holding trusts.

The Revenue Legislation Amendment Bill 2006 which introduced these changes is awaiting royal assent, which is expected to be 1 July 2006.

Taxes abolished in 2006–07 financial year

In accordance with the timetable for abolition of certain duties announced in the 2005–06 Budget, the following duties will be abolished from 1 January 2007:

• hire duty, which is payable on hiring charges for the hire of goods, and
• duty on the transfer of unquoted marketable securities, which is currently 0.6 per cent.

Property transfer rates

As previously announced, from 1 July 2006, rates of duty on the transfer of property will increase from 3.75 per cent to four per cent for transfers between $500,000 and $700,000 and from 3.75 per cent  to 4.5 per cent on transfers above $700,000.

Western Australia

The 2006–07 Western Australian Budget was handed down on 11 May 2006. The progressive abolition of duties on mortgages, hire of goods and non-rental business property transactions were announced prior to the Budget in March.

In summary:

• the mortgage duty rate will be reduced by 50 per cent to 0.2 per cent of advances from 1 July 2006
• mortgage duty will be abolished from 1 July 2008
• hire of goods duty will be abolished from 1 January 2007, and
• conveyance duty on non-real business property will be abolished from 1 July 2010.

Apart from the conveyance duty abolition, these changes have been introduced by the Revenue Laws Amendment Bill 2006 which is currently before parliament.

South Australia

The South Australian 2006–07 Budget is expected to be handed down on 21 September 2006.

Currently, there are no bills before parliament proposing changes to stamp duty legislation.

Tasmania

The Tasmanian 2006–07 Budget was handed down on 15 June 2006. No significant new stamp duty changes were announced.

The Taxation and Related Legislation (Miscellaneous Amendments) Bill 2006, currently being considered by parliament, proposes some minor amendments to the Duties Act, including a discretion under the land rich provisions to allow the commissioner to treat a company as a ‘private company’ if the commissioner is satisfied that its listing on a recognised stock exchange was part of an arrangement or scheme having as its purpose, or one of its purposes, the defeat of the objects of the land rich provisions.

The mortgage duty rate is to be reduced by 50 per cent from 1 July 2006 as announced in the 2005–06 Budget.

Australian Capital Territory

The 2006–07 Australian Capital Territory (ACT) Budget was handed down on 6 June 2006. No changes to duty are made.

However, as announced earlier this year, in accordance with the agreement with the Commonwealth, the following changes to duty have been made by the Duties Amendment Act 2006:

• From 1 July 2006, transfers of business assets comprising goodwill, intellectual property and statutory licences or permissions under Commonwealth or territory law will cease to be subject to stamp duty.
• Franchise agreements entered into on or after 1 July 2006 will cease to be subject to lease duty.
• Partnership interests and goods in the ACT will now only be dutiable property where they include, or are dependent on, an arrangement that include land, a Crown lease, land use entitlements, unquoted marketable securities or units in a unit trust.

Northern Territory

The 2006–07 Northern Territory (NT) Budget was handed down on 2 May 2006.

In accordance with its agreement with the Commonwealth, the NT has announced the following stamp duties will be abolished:

• Stamp duty on grant and renewal of leases and franchises from 1 July 2006. Conveyance stamp duty will still be payable on certain lease and franchise transactions such as the transfer of a lease.
• Stamp duty on unquoted marketable securities from 1 July 2006.
• Stamp duty on hiring arrangements from 1 July 2007.
• Stamp duty on non-residential conveyances, including goodwill, statutory licences and rights to use business names and patents, from 1 July 2007.

These changes (apart from the last mentioned change) have been introduced in the Treasury Legislation and Consequential Amendment Bill 2006 currently being considered by parliament.

Major changes to the land-rich provisions to commence on 1 July 2006 were announced in the Budget, which are also introduced in the Treasury Legislation and Consequential Amendment Bill 2006.

At present, land-rich duty of up to 5.4 per cent applies to acquisitions of majority interests (50 per cent or more) in a private unit trust holding NT property.

The changes mean that, from 1 July 2006:

• acquisitions of interests in land-rich private unit trusts of 20 per cent or more will trigger land-rich duty, and 
• the range of unit trusts to which land-rich duty provisions apply will be extended, by broadening the criteria for trusts which are deemed to be landholding, even though they do not directly hold land.

At present, a trust (Trust A) is deemed to own land held by a subsidiary trust (Trust B), one in which Trust A owns a majority of the units.

Following the changes, any trust in which another trust holds an interest of 20 per cent or more will be deemed to be a subsidiary and its land counted in determining the value of land to which the parent trust is entitled. Thus, if Trust A holds at least 20 per cent of the units in Trust B, it will be deemed to own the land held by Trust B.

An amendment has been introduced to prevent the avoidance of land-rich duty by listing shares on a stock exchange.

Changes have also been made to the time limits within which Land-Rich Statements will be required to be lodged and any stamp duty paid. These will be required to be undertaken within 60 days of the relevant acquisition, rather than within three months as previously required.

For more information please contact

Name : Steven Stevens
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1241
Fax : +61 3 9288 1567
Email : steven.stevens@freehills.com