WA Duties Bill draft now open for comment
20 August 2007The Bill
An exposure draft of the Duties Bill 2007 (WA) was released on 9 August 2007. Comments on the exposure draft must be provided by 21 September 2007. It is unlikely the time for comments will be extended as it is proposed that the legislation be in operation by 1 July 2008.
The exposure draft has been developed by the Department of Treasury and Finance and therefore does not represent settled government policy. However, subject to any changes resulting from the public consultation, it is considered that the Bill is likely to be endorsed by the government.
Despite the significant widening of the landholder regime as it applies to companies, the WA Treasurer has stated that this is not a revenue raising exercise and any surplus funds will fund a rate reduction. However, no rate reduction has been announced as yet.
It is noted that although the Duties Bill 2007 contains provisions for the transfer of business assets, these provisions will be repealed with effect from 1 July 2010, as previously announced by the Government of Western Australia (WA).
Summary of significant changes
The significant changes can be summarised as follows. However, it should be noted that as this is a complete rewrite of the Act, there are many other changes not covered by this summary.
- The Act is to be rewritten as a Duties Act.
- The corporate reconstruction exemption is to be expanded.
- A landholder regime is to be introduced which is to apply the same rules to companies and unit trusts.
- The current rules dealing with unit trusts, including the concessions for pooled investment trusts and equity trusts, are to be replaced by the landholder regime.
- Partnerships are to be dealt with under a separate regime.
- A concession is to be introduced for the transfer of property to a managed investment scheme.
- A general anti-avoidance provision is to be introduced.
Further details of these significant changes are set out below.
Dutiable transactions and dutiable property
The Act is to be rewritten as a Duties Act. Accordingly, it will be necessary to identify a dutiable transaction in order for transfer duty to be payable.
The concept of a ‘dutiable transaction’ is much wider than in the Duties Act in most other jurisdictions. It includes:
- a transfer, or agreement for transfer, of dutiable property
- a declaration of trust over dutiable property
- a vesting of dutiable property
- a foreclosure of a mortgage over dutiable property
- an acquisition of new dutiable property, on its creation, grant or issue
- a surrender of special dutiable property
- a trust acquisition or surrender – which relates to the acquisition of an interest in a discretionary trust by a ‘taker in default’, and
- a partnership acquisition.
The concepts of ‘dutiable property’, ‘new dutiable property’ and ‘special dutiable property’ are also much wider than most of the other Duties Act jurisdictions.
Changes to the corporate reconstruction exemption
The corporate reconstruction exemption provides an exemption from duty for certain transfers within a corporate group.
The exemption is to be widened to include 90 per cent owned unit trusts within a group. Currently, the exemption only applies to companies in the same 90 per cent wholly owned group.
The exemption is also to be widened to remove the requirements for the transferor and transferee to be associates for a period prior to and following the transfer.
The relaxing of the requirements is to be offset by wide anti-avoidance provisions and notification requirements to assist the commissioner in identifying avoidance practices.
Landholder regime
Under the landholder regime, certain acquisitions of interests in a ‘landholder’ will attract duty by reference to the land and chattels of the landholder.
A company or unit trust will be a landholder if it holds $2 million of Western Australian land directly or indirectly through a ‘linked entity’:
- a company, unit trust or partnership is linked to a landholder if the landholder (or another linked entity of the landholder) has a 20 per cent or greater interest in the company, unit trust or partnership, and
- the trustee of a discretionary trust is also a linked entity if the landholder is a potential beneficiary of the discretionary trust – unless the commissioner determines such a linking would be inequitable.
This represents a significant widening of the tracing provisions.
In addition, the percentage of assets test is to be removed. That is, the percentage of the landholder’s assets comprised of land is irrelevant. This is also a significant widening of the base.
The measures will be triggered by:
- an acquisition of 50 per cent or more of an unlisted landholder will attract duty
- an acquisition of 90 per cent or more of a listed landholder will attract duty.
- An acquisition of a ‘further interest’ will also attract duty regardless of whether duty was payable in respect of the acquisition of the previous interest and regardless of whether the landholder held any land at the time of acquisition of the previous interest. A ‘further interest’ is an acquisition where the acquirer already has a 50 per cent or greater interest in an unlisted landholder or a 90 per cent or greater interest in a listed landholder.
Where duty is payable, a land-rich statement is to be lodged:
- within two months of the agreement for the acquisition being entered into (regardless of whether the agreement is conditional or not), or
- within two months of the acquisition occurring if there is no agreement or if the landholder is not a landholder at the time of the agreement but is a landholder when the agreement completes.
This is likely to significantly expedite the time for payment of any duty and create a significant burden for acquisitions which are highly conditional and have a long lead time to completion.
Duty will be payable within one month of an assessment issuing.
The duty will be refunded if the transaction does not complete.
As under the current rules, the aggregation provisions for related parties are wide. Further, as under the current rules, there is no discretion for the Commissioner of State Revenue to disaggregate related parties where the aggregation is inappropriate.
Treatment of unit trusts
As noted above, the landholder regime will apply to unit trusts.
Accordingly, acquisitions that do not amount to a 50 per cent acquisition or the acquisition of a further interest will no longer attract duty.
There will be no specific exemptions for wholesale unit trusts as the current exemptions for pooled investment trusts and equity trusts will not be kept. Accordingly, unit holders in wholesale trusts will need to ensure they do not trigger the land rich provisions by acquiring a 50 per cent or 90 per cent interest (as relevant) or a further interest.
Treatment of partnerships
Partnerships are to be covered by a separate regime.
Duty will be payable on the acquisition of any interest in a partnership that holds dutiable property.
In this division, ‘dutiable property’ is land and chattels in Western Australia.
Duty will be payable on the relevant percentage of the land and chattels of the partnership being acquired regardless of the value of the land and chattels.
Managed investment schemes
The concession for managed investment schemes will allow a party to contract to acquire property and for the property to be transferred to a managed investment scheme established after the contract (without incurring double duty) provided:
- the contract is conditional on the managed investment scheme being established, and
- the managed investment scheme is established by means of an offer to subscribe to the scheme made to the public.
General anti-avoidance provision
The general anti-avoidance provision is modelled on Part IVA of the Income Tax Assessment Act 1936.
The provision applies to a scheme that a person enters into for the sole or dominant purpose of enabling an elimination or reduction in the amount of, or a postponement of the liability for, duty.
If the sole or dominant purpose was to eliminate, reduce or postpone another tax then that purpose is to be ignored in determining the purpose of the scheme for the purposes of the avoidance provision.
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