Ashurst Australia 10 July 2013 Stamp Duty Bulletin June 2013 stamp duty developments WHAT YOU NEED TO KNOW This Bulletin outlines Australian stamp duty developments in June 2013, which may impact your business, including: Insurance duty Qld: Queensland Budget 2013-14 the Queensland Government has announced that the rate of duty applicable to Class 1 and 2 general insurance products will rise from 7.5% and 5% respectively to 9% under the Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld). ACT: ACT Budget 2013-14 the ACT Government has announced that duty on general and life insurance products will be abolished by 2016-17. There are also reductions in duty on insurance premiums from 1 July 2013. Transfer duty Qld: Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld) the Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld) includes provisions to give retrospective effect to a number of taxpayer-beneficial administrative arrangements. Qld: DA152A.1.1 Correcting a clerical error in a previous transfer misdescription of property the Queensland Office of State Revenue has released a public ruling outlining the requirements for an exemption under section 152A of the Duties Act 2001 (Qld). SA: SA Budget 2013-14 the SA Government has announced that it will be providing stamp duty exemptions for eligible corporate reconstructions in the Stamp Duties Act 1923 (SA) from 1 July 2013. Qld: DA000.3.3 Securitisation transactions the Queensland Office of State Revenue has released a public ruling which clarifies certain issues in relation to securitisations involving mortgage-backed securities, asset-backed securities and corporate debt securities under the Duties Act 2001 (Qld). Vic: State Tax Laws Amendment (Budget and other Measures) Act 2013 (Vic) the State Tax Laws Amendment (Budget and Other Measures) Act 2013 (Vic) makes a number of amendments to the Duties Act 2000 (Vic) relating to landholder duty. NSW: Budget 2013-14 the NSW Government has included measures in its 2013-14 Budget which will see deferral of the abolition of mortgage duty, duty on transfer of unquoted marketable securities and duty on the transfer of non-land business assets until a date proclaimed by the Governor. ACT: ACT Budget 2013-14 the ACT Government has announced reductions in duty on conveyances. QLD: DA000.12.1 Transfer duty exemption for farm-in transactions in the resources sector the Queensland Office of State Revenue has released DA 000.12.1, which outlines how the exemption from transfer duty for exploration and development expenditure occurring under a farm-in agreement will be administered under an administrative arrangement pending amendment of the Duties Act 2001 (Qld). WA: Hazel Holdings Pty Ltd and Commissioner of State Revenue [2013] WASAT 93 the WA State Administrative Tribunal has held that transfer duty on the sale of 32 lots of land in a single transaction should be assessed on a "sale in one line" basis which involves discounting the gross realisable value of the lots to take into account matters such as holding costs, costs of sale and profits and risk, rather than aggregating the individual values of each lot. Fire services levy Qld: Queensland Budget 2013-14 the Queensland Government has announced that the Urban Fire Levy will be renamed the Emergency Management, Fire and Rescue Levy, and will be applied to all rateable properties. The rate of the levy will increase. Ashurst Stamp Duty Bulletin 10 July 2013 1
Vic: Fire Services Property Levy Act 2012 (Vic) The main provisions of the Fire Services Property Levy Act 2012 (Vic) came into operation on 1 July 2013. Lease duty ACT: ISPT Pty Ltd and Commissioner for ACT Revenue [2013] ACAT 43 the Appeal Tribunal of the ACT Civil and Administrative Tribunal has held that a lease executed in 2010, after the abolition of lease duty, was dutiable as it replaced a lease instrument entered into in 2006. Administration ACT: Disallowable Instrument Taxation Administration (Amounts Payable Duty) Determination 2013 (No 2) Disallowable Instrument DI 2013-174, which sets duty rates and revokes instrument DI 2013-87, commenced on 1 July 2013. Qld: Revenue Legislation Amendment Regulation (No. 1) 2013 (Qld) the Revenue Legislation Amendment Regulation (No. 1) 2013 (Qld) amends the Duties Regulations 2002 (Qld) to increase fees charged by the Queensland Office of State Revenue. Qld: Withdrawal of public rulings three public rulings have been withdrawn as new legislation gives effect to their administrative arrangements. SA: Information Circular No: 58 interest rates RevenueSA has issued Information Circular No: 58, which details interests rates for tax defaults and tax refunds. NSW: Legal Professional Privilege Guidelines Applied by the NSW Chief Commissioner of State Revenue the NSW Office of State Revenue has released new Guidelines which set out procedures which must be followed by authorised officers when a claim of legal professional privilege is made by a person in the course of an investigation under a tax law. Ashurst Stamp Duty Bulletin 10 July 2013 2
Relevant area At a glance Insurance duty Qld: Queensland Budget 2013-14 The 2013-2014 Queensland Budget was handed down on 4 June 2013. Among the measures announced, the Government has determined that it will raise the rate of duty applicable to insurance premiums for Class 1 and Class 2 general insurance products to 9% from 1 August 2013. The rate for Class 1 products is currently 7.5%, and the rate for Class 2 products is currently 5%. The Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld) amends the Duties Act 2001 (Qld) to reflect these changes. The Queensland Office of State Revenue has released a fact sheet outlining how they think the changes will apply, which depends on when the insurance contract is entered into and when the premium is paid. ACT: ACT Budget 2013-14 The 2013-14 ACT Budget was handed down on 4 June 2013. Among the measures announced, duties on general and life insurance products will be abolished by 2016-17. There are also reductions in duty on insurance premiums from 1 July 2013 as follows: a) general insurance premiums duty reduced from 8% to 6%; b) life insurance contracts (including term, temporary or insurance rider policies) duty reduced from 4% to 3%; and c) other life insurance contracts duty reduced from 0.08% to 0.06% of the total sum insured where the sum insured is greater than $2,000, and from $0.80 to $0.60 for each contract where the sum insured is less than $2,000. Transfer duty Qld: Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld) The Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld) makes additional amendments (from the budgetary measures) to the Duties Act 2001 (Qld). Included in these changes are provisions to give retrospective effect to a number of taxpayer-beneficial administrative arrangements. These affect: a) pooled superannuation trusts; b) certain unregistered management investment schemes under the Corporations Act 2001 (Cth); c) particular covered bond transactions under the Banking Act 1959 (Cth); d) certain transfers of dutiable property involving custodians of complying superannuation funds; and Ashurst Stamp Duty Bulletin 10 July 2013 3
e) certain dutiable transactions to correct a clerical error. Qld: DA152A.1.1 Correcting a clerical error in a previous transfer misdescription of property The Queensland Office of State Revenue has released a public ruling, DA152A.1.1 Correcting a clerical error in a previous transfer misdescription of property. The ruling outlines the requirements for an exemption under section 152A of the Duties Act 2001 (Qld) and provides an example of its operation. Section 152A provides that transfer duty is not imposed on the previous dutiable transaction for a "section 152 exempt transaction". Under section 152, transfer duty is not imposed on dutiable transactions to correct clerical errors in a previous dutiable transaction about the same property under some circumstances. If the conditions outlined in the public ruling which are drawn primarily from section 152A of the Act are met, then the party to the previous dutiable transaction may apply to the Commissioner in the approved form and the Commissioner must reassess transfer duty on the previous dutiable transaction on the basis that duty is not imposed on the transaction. SA: Budget 2013-14 The 2013-14 SA Budget was handed down on 6 June 2013. The SA Government has announced that it will be providing statutory stamp duty exemptions for eligible corporate reconstructions from 1 July 2013 in the Stamp Duties Act 1923 (SA). This exemption will replace the current exgratia relief administrative scheme, which operates to provide relief for corporate reconstructions of generally up to 95% (or 100% in exceptional circumstances) of the duty otherwise payable. The eligibility criteria under the new exemptions will be consistent with the criteria currently applied under the administrative scheme including: a) there is a transfer of assets between members of a corporate group; b) the transfer simplifies or rationalises a group structure and that does not involve any change in the ultimate beneficial ownership of the asset; c) the transfer involves "substantially all" of the assets of the transferor; and d) the transferor has been a member of the same corporate group for three years prior to the transfer. Qld: DA000.3.3 Securitisation transactions The Queensland Office of State Revenue has released public ruling DA 000.3.3 which clarifies certain issues in relation to securitisations involving mortgage-backed securities, asset-backed securities and corporate debt securities under the Duties Act 2001 (Qld) (the Act). The ruling clarifies that the definition of "corporate debt security" in the Act applies to both documented and paperless securities, further details the Ashurst Stamp Duty Bulletin 10 July 2013 4
definitions of "mortgage-backed security" and "asset-backed security" and outlines the exemptions from duties. Vic: State Tax Laws Amendment (Budget and other Measures) Act 2013 (Vic) The State Tax Laws Amendment (Budget and Other Measures) Act 2013 (Vic) (the Act) has received Royal Assent. The Act (reported in our Stamp Duty Bulletin of 21 May 2013) makes a number of amendments to the Duties Act 2000 (Vic) relating to landholder duty. For details of these changes, please see our previous bulletin. NSW: Budget 2013-14 The 2013-14 NSW Budget was handed down on 18 June 2013. The Budget included previously-announced changes, as reported in our Stamp Duty Bulletin of 21 May 2013, which will see the deferral of the abolition of mortgage duty on business transactions, duty on unquoted marketable securities and duty on the transfer of non-land business assets until a date proclaimed by the Governor. The State Revenue and Other Legislation Amendment (Budget Measures) Act 2013 (NSW) gives effect to these changes by amending the Duties Act 1997 (NSW). ACT: ACT Budget 2013-14 In its 2013-14 Budget, the ACT Government also that it will accelerate its reduction of conveyance duty as part of its plan to abolish conveyance duty over the next 20 years. As well as reductions in duty rates over the next five years, from 5 June 2013 the rate applying to the sale of properties above $1.650 million will be a flat rate of 5.5%. To offset the loss of revenue, general rates will rise, particularly on large commercial properties. QLD: DA000.12.1 Transfer duty exemption for farm-in transactions in the resources sector The Queensland Office of State Revenue has released DA 000.12.1, which outlines how the exemption from transfer duty for exploration and development expenditure occurring under a farm-in agreement will be administered under an administrative arrangement pending amendment of the Duties Act 2001 (Qld). The ruling specifies how transfer duty exemptions will operate in relation to farm-in agreements and transfers of interests in an exploration authority under both deferred and upfront farm-in agreements. WA: Hazel Holdings Pty Ltd and Commissioner of State Revenue [2013] WASAT 93 In Hazel Holdings Pty Ltd and Commissioner of State Revenue [2013] WASAT 93, the WA State Administrative Tribunal has held that transfer duty on the Ashurst Stamp Duty Bulletin 10 July 2013 5
sale of 32 lots of land in a single transaction should be assessed on a "sale in one line" basis which involves discounting the gross realisable value of the lots to take into account matters such as holding costs, costs of sale and profits and risk, rather than aggregating the individual values of each lot. Facts In February 2008, Sky City Blue Pty Ltd (Sky City) purchased and subdivided two lots of land. Part of the shareholding in Sky City was held by a family company of Mr Jasper and Mr Fensome. In 2011, Mr Jasper and Mr Fensome purchased 32 of the lots (the Lots) through another entity which they controlled, Hazel Holdings, in a single transaction. Prior to the purchase, the market price of the Lots was valued at $2,133,344. This price was paid for the Lots. The contract of sale was assessed for duty, based on a dutiable value of $3,885,000. The taxpayer objected to this assessment, and applied to a Tribunal for a review of the Commissioner's decision to disallow the objection. At the Tribunal, two valuers agreed that the value of the lots, if sold individually, would be a collective gross value of $3,835,000 including GST. The Commissioner submitted that the value of the land should be ascertained on this basis. However, the two valuers also suggested a value of between $2,200,000 and $2,800,000 if the Lots were sold on a "sale in one line" basis, which involves discounting the gross realisable value of the Lots to take into account matters such as holding costs, costs of sale and profits and risk. The taxpayer submitted that the value of the land should be ascertained on this basis. Held The Tribunal noted that the unencumbered value of the land, on the evidence presented by the valuers at the Tribunal, was at least $2,200,000. It followed that duty would be assessed with reference to the unencumbered value of the land, rather than the consideration for the transaction. The question for the Tribunal was how to determine the unencumbered value. Applying ordinary principles of valuation what price for the land would be agreed between a purchaser conversant with the land and a willing but not anxious vendor the Tribunal considered that the appropriate valuation method was a "sale in one line" method. The Tribunal found that the Commissioner's view ignored the true nature of the transaction. The dutiable transaction was an agreement to transfer 32 lots of land in a single transaction. The evidence before the Tribunal suggested that no purchaser would pay $3,835,000 for the Lots. The lower "sale in one line" valuation of $2,200,000 was preferred. In the Tribunal's view, it better took into account the slow market and thus higher holding and selling costs and greater risk. Fire Services Levy Qld: Queensland Budget 2013-14 In its 2013-14 Budget, the Queensland Government announced that from 1 January 2014, the Urban Fire Levy will be renamed the Emergency Ashurst Stamp Duty Bulletin 10 July 2013 6
Management, Fire and Rescue Levy, and will be applied to all rateable properties. The rate of the levy will increase to 6.5% to help offset increasing costs associated with providing emergency management services. Local governments will be affected by the levy, but will be provided transitional assistance. The Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld) amends the Fire and Rescue Act 1990 (Qld) to reflect this change. Vic: Fire Services Property Levy Act 2012 (Vic) The main provisions of the Fire Services Property Levy Act 2012 (Vic) (the Act), previously reported on in our Special Indirect Tax Alert of 5 September 2012, came into operation on 1 July 2013. Relevantly, the Act replaces the former insurance-based levy with a propertybased levy. The levy is charged on "owners" of leviable land. "Owners" means a person entitled to a parcel of land for a freehold estate in possession, under a lease of Crown land or under a licence of Crown land if the person has a right, absolute or conditional, of acquiring the fee simple. Lease duty ACT: ISPT Pty Ltd and Commissioner for ACT Revenue [2013] ACAT 43 In ISPT Pty Ltd and Commissioner for ACT Revenue [2013] ACAT 43, the Appeal Tribunal of the ACT Civil and Administrative Tribunal has held that a lease executed in 2010, after the abolition of lease duty, was dutiable as it replaced a lease instrument entered into in 2006. Facts On 7 April 2006, the taxpayer and the Commonwealth executed an Agreement for Lease (AFL) for (at the time) unbuilt premises. Although the lease was not executed, the AFL was a "lease instrument" as defined by the Duties Act 1999 (ACT) (the Act). Duty was assessed, and paid by the taxpayer. In 2006, the Act was amended to abolish duty on lease instruments executed after 30 June 2009. In 2007, work commenced to construct a new building on the leased premises. The Commonwealth department moved into the building from 28 March 2009. On 9 May 2010, the parties executed two documents: a) a Deed of Release, with an effective date of 5 April 2009, which purported to release the parties from the AFL; and b) a new lease (the 2010 Lease) for the premises, with a commencement date of 6 April 2009. Although lease duty was abolished, under section 421(2)(a) of the Act, duty was still chargeable on leases executed from 1 July 2009 where the lease instrument replaced a lease instrument entered into before 1 July 2009. Ashurst Stamp Duty Bulletin 10 July 2013 7
Accordingly, the Commissioner assessed duty on the 2010 Lease. The taxpayer objected to this decision, and sought a review of the Commissioner's decision to disallow the objection. The Tribunal originally confirmed this decision, and the taxpayer appealed. The taxpayer argued that the Original Tribunal had erred in law in concluding that the 2010 Lease "replaced" with AFL within the terms of section 421(2)(a) of the Act. It submitted that the 2010 Lease evidenced a substantially different relationship between the taxpayer and lessee. While some elements of the AFL remained, there was not the necessary degree of equivalence between the two leases to consider that one "replaced" the other. In particular, there was a difference in the parties' rights, and a difference in, and extension to, the areas of exclusive possession granted under the lease. The taxpayer also submitted that the Tribunal erred in finding there was no requirement for an avoidance purpose to enliven the operation of section 421(2)(a). It was accepted that the taxpayer had no such purpose. Held The Appeal Tribunal held that the 2010 Lease "replaced" the AFL for the purposes of section 421(2)(a). Significant aspects of the AFL were retained in the 2010 Lease, and it was open to the Original Tribunal to be satisfied that there was the necessary degree of equivalence. That the 2010 Lease "replaced" the AFL was further evidenced by the fact that the lessee was issued with an invoice for the period between 6 April 2009 and 30 April 2010 based on the AFL, and an additional invoice was then issued to reflect the difference between the rent payable under the AFL and 2010 Lease. The Appeal Tribunal also upheld the Original Tribunal's finding that section 421(2)(a) did not require an avoidance purpose. The Appeal Tribunal contrasted section 421(2)(a) with section 421(2)(b), which specifically refers to such an intent as being a condition of its operation. It further noted that while there may be limited purposes in which a replacement lease is executed without an avoidance purpose, this does not lead to the conclusion that an avoidance purpose is necessary for section 421(2)(a) to operate. Administration ACT: Disallowable instrument Taxation Administration (Amounts Payable Duty) Determination 2013 (No 2) Disallowable instrument DI 2013-174, which sets duty rates and revokes instrument DI 2013-87, commenced on 1 July 2013. The instrument affects the duty payable in relation to the following provisions of the Duties Act 1999 (ACT): a) section 31 (general rate of duty); b) part 15.3 (shares, units and interests marketable securities); c) section 33(1) (certain business assets property); Ashurst Stamp Duty Bulletin 10 July 2013 8
d) part 15.2 (general rate of duty short-term leases); e) section 178 (contracts of general insurance); f) section 185(1) (general rate of duty policies of life insurance); g) section 185(2) (policies of temporary or term insurance); h) section 185(3) (life insurance riders); and i) section 185(4) (disability income insurance). Qld: Revenue Legislation Amendment Regulation (No. 1) 2013 (Qld) The Revenue Legislation Amendment Regulation (No. 1) 2013 (Qld) amends the Duties Regulations 2002 (Qld) to increase fees charged by the Queensland Office of State Revenue for an instrument lodged on which duty is not imposed, and to return, by post, an instrument or statement lodged for assessment. Qld: Withdrawal of public rulings On 24 June 2013, three new rulings were issued. They withdraw their predecessors in light of the fact that the Duties Act 2002 (Qld) has been amended by the Revenue Amendment and Trade and Investment Queensland Bill 2013 (Qld) to give effect to the administrative arrangement contained in the previous rulings. The rulings are: a) DA130I.1.2 Extension of duty exemptions for mortgage-backed and asset-backed securities to covered bonds b) DA075.1.2 Pooled superannuation trusts may qualify as pooled public investment unit trusts c) DA075.2.2 Certain unregistered managed investment schemes SA: Information Circular No: 58 interest rates RevenueSA has issued Information Circular No: 58, which details interests rates for tax defaults and tax refunds. From 1 July 2013, the interest rate in respect of defaults is 10.82% per annum, and the interest rate in respect of tax refunds for successful taxpayer objections and appeals is 2.82% per annum. NSW: Legal Professional Privilege Guidelines Applied by the NSW Chief Commissioner of State Revenue The NSW Office of State Revenue has released new Legal Professional Privilege Guidelines Applied by the NSW Chief Commissioner of State Revenue. While not creating legally enforceable obligations, the Guidelines set out procedures which must be followed by authorised officers when a claim of legal professional privilege is made by a person in the course of an Ashurst Stamp Duty Bulletin 10 July 2013 9
investigation under a tax law. The stated intent of the Guidelines is that an authorised officer will not inspect, copy or remove any record to which access is sought until the client has been given a reasonable opportunity to claim legal professional privilege. Where a claim of privilege is made, but disputed by the authorised officer, the authorised officer will not continue to seek access to the information or inspect the relevant documents unless the claim is abandoned or waived by the client, or the claim is dismissed by a court. Contacts Geoffrey Mann Partner Melbourne T: +61 3 9679 3366 E: geoffrey.mann@ashurst.com Nika Dharmadasa Senior Associate Melbourne T: +61 3 9679 3320 E: nika.dharmadasa@ashurst.com This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information please contact us at aus.marketing@ashurst.com. Ashurst Australia (ABN 75 304 286 095) is a general partnership constituted under the laws of the Australian Capital Territory carrying on practice under the name "Ashurst" under licence from Ashurst LLP, a limited liability partnership registered in England and Wales. Further details about the Ashurst group can be found at www.ashurst.com. Ashurst Australia 2013. No part of this publication may be reproduced by any process without prior written permission from Ashurst. Enquiries may be emailed to aus.marketing@ashurst.com. Ref: 225855373.01 10 July 2013