1. Chapter 1 Preliminary. 1.1 Terms used in this Act Sec th September 2007

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1 24 th September 2007 The Stamp Duty Rewrite Project Team Office of State Revenue GPO Box T1600 Perth WA 6845 Dear Sir/Madam, Exposure Draft of the Duties Bill 2007 (WA) The Taxation Institute of Australia and the Institute of Chartered Accountants (Bodies) welcomes the release of the Exposure Draft of the Duties Bill 2007 (WA) (the Exposure Draft) and appreciates the opportunity to comment. However, given the significance and magnitude of the changes, it is unfortunate that the period for public comment was limited to 6 weeks. The Bodies consider that the Exposure Draft is generally an effective piece of legislation in terms of its primary purpose and revenue raising objectives. The Exposure Draft is drafted in contemporary language and is well-structured, and in this regard represents a significant improvement to its predecessor, the Stamp Act 1921 (WA). The move to a transaction based approach and the simplification of the landholder and corporate reconstruction regimes are particularly welcome. The Exposure Draft, however, gives rise to a number of technical, drafting and policy issues. These issues are discussed below. COMMENTS ON THE EXPOSURE DRAFT BY PROVISION 1. Chapter 1 Preliminary 1.1 Terms used in this Act Sec 3 We have reservations concerning the use of regulations to extend and limit a number of the definitions contained in the Exposure Draft. The definition of "discretionary trust" is one example of a definition that may be extended or limited by regulation. Other examples include the definition of "surrender" (Sec 9), "new dutiable property" (Sec 13(1)(b)), "special dutiable property" (Sec 14(i)) and right (Sec 18/3(c)). These definitions are already expansive and it is unclear why the power to amend by regulation is necessary. This is also a questionable use of the power to make regulations.

2 2. We make a number of small drafting suggestions in this Submission. One such suggestion is that there should be consistency between the reference to "executed instrument" in the definition of "duplicate" and "instrument" in the definition of "transaction record". 2. Chapter 2 Transfer duty 2.1 Terms used in this Chapter Sec 9 Subdivision 1". 2.2 The term "new dutiable property" Sec 13 The Bodies have a number of reservations concerning the levying of duty at the point of acquisition of "new dutiable property" including the following: (a) (b) para (b) appears capable of application to the creation of a number of mere personal rights or licenses and is thus not confined to "property rights similarly, rights to exploit intellectual property and chattels are captured, while the acquisition of such property is not dutiable. 2.3 When a transaction for a chattel is not a dutiable transaction Sec 17 This provision does not operate so as to exclude as a dutiable transaction: (a) (b) a transaction involving chattels and intellectual property; or aggregated transactions involving chattels or chattels and intellectual property. It is unlikely that this was intended given that transactions involving chattels and intellectual property without other dutiable property are afforded concessional treatment. 2.4 The term "right" Sec 18 The Bodies have a number of reservations concerning the levying of duty at the point of transfer or agreement for the transfer of "rights" including the following: (a) (b) (c) as with the definition of "new dutiable property", the definition of "right" includes a number of mere personal rights or licenses and is thus not confined to "property rights". similarly, rights to exploit intellectual property and chattels are captured, while the acquisition of such property is not dutiable; a carbon right and a carbon covenant would appear to be included, while such rights are expressly excluded from the definition of "new dutiable property." The imposition of duty on the transfer of such rights would be an impediment to the development of an emissions trading scheme.

3 When liability for duty arises Sec 19 To avoid inadvertent errors, the time when liability for duty arises should be set out in full in Schedule 1, rather than referred to in both Sec 19(1)(b) and Schedule 1 column Who is liable to pay duty Sec 20 To avoid inadvertent errors, the exception referred to in Sec 20 should also be referred to in Schedule Obligations relating to instruments that are not duty endorsed Sec 25 This provision imposes an obligation to lodge an instrument or give notice of the instrument prior to the time when the instrument needs to be lodged for assessment and should be amended accordingly. 2.8 Dutiable value of certain dutiable transactions Sec 29 Clause 30 of the Explanatory Memorandum refers to the order of application of Secs 29 and 30 to a foreclosure of mortgages. This order of operation should be referred to expressly in the legislation by limiting the operation of Sec Unencumbered value of property Sec 38 The reference should be to "unencumbered value" so as to be consistent with the reference to this term in Sec 9 and to permit the term to be used in connection with references to other forms of property (e.g. unencumbered value of the option property in Sec 48(b)) Transactions for particular Western Australian business assets that are not dutiable transactions Sec 82 The exception in paragraph (2) for intellectual property does not apply to aggregated transactions involving intellectual property Dutiable transactions related to changes in trustees and managed investment schemes Sec 113 The Bodies have reservations that nominal duty is only imposed on a change of trustee in circumstances where the continuing and new trustees cannot be and cannot become beneficiaries of the trust. This represents a change in policy, which is not explained in the Explanatory Notes. This change in policy will also have a significant practical implication as many family trust deeds in Western Australia include the trustee in the class of eligible beneficiaries. Family members also frequently fill the role of trustee, thereby avoiding the need to establish a trustee company or engaging the services of an independent trustee.

4 4. 3. Chapter 3 Landholder Duty 3.1 Broadening of the base The elimination of the land rich threshold and reduction of the relevant acquisition threshold (in the case of unlisted landholders) to "50% or more" and the ability to look though entities with a 20% or more interest will result in the broadening of the duty base particularly for companies. This is partially offset by the increase in the land value threshold to $2 million. The Bodies have concerns about this broadening of the duty base, as it goes further than the alignment of regimes as they apply to different types of entities. If the measure is introduced, there should also be a significant reduction in conveyance duty rates and an increase in the $2 million threshold. The broadening of the base will increase the number of transactions that will be subject to landholder duty, and will thereby result in an increase in compliance costs. The $2 million land value threshold is very low in the context of current property prices. An acquisition of a company with relatively immaterial WA landholdings will result in an obligation to comply with what will be seen as a WA nuisance tax. The Explanatory Notes states that the $2 million threshold is consistent with other jurisdictions. Such a comparison is erroneous as the regimes are not comparable the WA regime has no land rich test, while the other regimes generally do. 3.2 The term "entity" Sec 145 The term "unit trust scheme" is not defined. The Explanatory Notes state that this term is to take on its ordinary meaning. Our experience is that the term "unit trust scheme" is not a commonly used expression. The term "unit trust" is more commonly used, but even that term does not have any generally accepted meaning. To achieve greater certainty, we suggest that the definition of "unit trust scheme" in the Duties Act (Vic) and Duties Act (NSW) be adopted: ""unit trust scheme" means any arrangements made for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them, as beneficiaries under a trust, in any profits, income or distribution of assets arising from the acquisition, holding, management or disposal of any property whatever pursuant to the trust." 3.3 Entitlement of person who has control of a landholder or other entity Sec 148 The Bodies have concerns about the potentially wide application of this control provision and the need to rely on the Commissioner s discretion for dispensation Under this provision, a person is taken to control an entity if they have the capacity to determine or influence the outcome of decisions about the financial and operating policies of the entity. A person who controls an entity is taken to have an entitlement to all of the surplus property on a winding up.

5 5. A person may control an entity with a shareholding of significantly less than 50%. A listed entity may be controlled by a shareholder who holds significantly less than 90% - control would be presumed with a shareholding of greater than 50%. The broad operation of this provision is only limited if the Commissioner can be satisfied that the result would be inequitable. No guidance is given in the legislation or the Explanatory Notes as to what is inequitable. Ultimately, the matter will be left to the Commissioner to decide. The concerns to which the provision is addressed as referred to in the Explanatory Notes can be dealt with by a much more targeted provision or the general anti-avoidance provision. The current provision will result in significant uncertainty as to whether a relevant acquisition has occurred. 3.4 Entities that are linked Sec 150 The definition of "linked entities" should exclude listed entities (unless they are 90% owned). As the legislation is currently drafted, duty may be payable on the indirect acquisition of a listed entity (for example through an unlisted entity with a holding of 25%) while a direct acquisition of the same interest would not be dutiable. This is inequitable and inappropriate. We note that other jurisdictions (e.g. NSW) exclude listed entities from the definition of linked entities. 3.5 The terms "listed corporation" and "listed unit trust scheme" Sec 156 The reference to a compulsory acquisition notice under the Corporations Act section 661B(1) should be expanded to include compulsory acquisition notices or similar notices under the regulations governing any prescribed financial market outside of Australia. 3.6 Exemption if nominal duty would be chargeable on transfer Sec 162 Exemption if transfer duty would not be chargeable Sec 163 The references to the acquisition being by way of a transfer is confusing as "acquisition" already has a defined meaning that relates to the acquisition of an interest in a landholder as opposed to the land of the landholder. It is suggested that other formulations of this provision be adopted (eg, Sec 85(1)(a) of the Duties Act (Vic) or Sec 195 of the Duties Act (Qld)). 3.6a Advancing time of acquisitions Sec 171 Section 171 advises the time of an acquisition for the purposes of the landholder regime. This is likely to produce significant compliance difficulties as the information will not be available. Further, there should be a power authorising the Commissioner to extend the time for lodging information where it is not practicable to provide information within the lodgement period. 3.7 Powers of Commissioner where further information required for determination of application Sec 175 There should be some time limit imposed on the Commissioner for determining an application.

6 Rates of duty Sec 177 See our comments under 3.1 above. 4. Chapter 6 General duty exemption for reconstruction of corporate or other entities 4.1 Scope of exemption We note that the provisions provide for the interposition of a company in order to allow a corporate group to consolidate. We suggest that it would be appropriate to allow corporate reconstruction relief in relation to the interposition of an entity in a broader range of circumstances than this. For example, Tax Laws Amendment (2007 Measures No 5) Bill 2007 (Cth) introduced a CGT rollover to permit a trust to be imposed above a stapled structure. The purpose of this rollover is to facilitate investment in certain US REITs. (Should be stated in full) Given that a number of property funds are structured as stapled securities, it would be appropriate to permit corporate reconstruction relief in this circumstance as, otherwise, the stamp duty cost may make the interposition prohibitive. Further, given that the underlying principle for the relief is that the economic ownership of the underlying assets has not changed, we consider that it would be appropriate to allow for the interposition of a company in circumstances other than only to allow the group to consolidate. Such an interposition does not change the economic ownership of the assets and an extension of corporate reconstruction relief is, therefore, appropriate. There are often commercial reasons for "top hatting" a corporate group in this manner, including in the context of offshore entities that may coincidentally own property in Western Australia. 4.2 Commissioner to be notified of certain events after an exempt relevant consolidation transaction Sec 253 The Bodies have concerns about the five year notification period. This is a very long period of time. It is questionable whether any scheme for the avoidance of duty or tax would be implemented over such a long time period of time, particularly where the transaction was entered into for the purposes of forming a tax consolidated group. 4.3 Commissioner to be notified of certain events after an exempt relevant reconstruction transaction Sec 254 The word "entity" appears to be missing after the second reference to the word "controlling" in Sec 254(2)(a). Again, the Bodies have reservations concerning the five year notification period. It is questionable whether any scheme for the avoidance of duty or tax would be implemented over such a long period of time.

7 7. Conclusion If you require clarification of any of the matters set out in this submission, or require further details or additional information, please do not hesitate to contact Peter Moltoni on (08) or Mr Scott Grimley on (08) Representatives of the Bodies would also be happy to meet with the Office of State Revenue to discuss the above comments in further detail if this would be of assistance. Yours sincerely, Peter Moltoni President Taxation Institute of Australia Con Abbott FCA General Manager WA Institute of Chartered Accountants