Legislation amendment (tax concessions)
The State Revenue Legislation Amendment (Tax Concessions) Act 2006 received assent on 2 November 2006.
This Act amends the Duties Act 1997, the Land Tax Management Act 1956, the Gaming Machine Tax Act 2001, the Taxation Administration Act 1996 and the Valuation of Land Act 1916.
Amendment of Duties Act 1997
Aggregation of dutiable transactions
At present the Duties Act 1997 allows separate dutiable transactions to be treated as a single dutiable transaction if they occur within 12 months, the transferee is the same or the transferees are associated persons and the dutiable transactions together form, evidence, give effect to or arise from what is substantially one arrangement relating to all of the items of dutiable property concerned.
The amendments provide that the transactions can only be aggregated if the transferor is the same person or the transferors are associated persons.
The amendments remove the general discretion of the Chief Commissioner of State Revenue to decline to aggregate transactions under the section. Instead, the Chief Commissioner will be required to decline to aggregate the transactions if satisfied that:
a) the dutiable property to which the transactions relate are comprised of separate allotments of vacant land, and
b) the transferee is a person authorised to contract to do residential building work under the Home Building Act 1989, and
c) the transferee intends to construct residential premises on the allotments for the purposes of sale to the public.
Managed investment schemes
The amendments remove the nominal duty that would otherwise apply in respect of an instrument relating to a managed investment scheme that amends, varies or replaces the instrument establishing or governing the scheme without transferring dutiable property or affecting unit entitlements, which would not otherwise be chargeable with duty.
Home equity release schemes
Duty is not chargeable on a transfer or agreement to transfer land if the transfer or agreement is entered into in connection with an approved home equity release scheme. At present, at least one of the transferors must be 65 years of age or older for this concession to apply. This concession is extended to persons aged 60 years or over, with effect on 29 June 2006.
Call option assignment duty
At present, an assignment of a right to purchase dutiable property under a call option is treated in certain circumstances as a transfer of the dutiable property concerned and is chargeable with duty under the Duties Act 1997 accordingly.
The amendments redefine the expression 'call option' so as to make it clear the call option must confer a right to require a person to sell dutiable property and the right must be conferred by an agreement or arrangement that is not a dutiable transaction under Chapter 2. The purpose is to clarify that agreements for sale of dutiable property do not attract duty under the call option assignment provisions.
The amendments also confer further exemptions from call option assignment duty. These exemptions apply to:
a) a call option that is assigned by a licensed builder in connection with the building of or an agreement to build residential premises, and
b) a call option that is assigned by a corporation to another corporation who is a member of the same corporate group.
Land rich duty
At present, a liability for land rich duty arises when a person acquires a relevant interest in a land rich entity (such as a unit trust scheme or private company with significant land holdings).
The amendments clarify that if the acquisition arises from an agreement to purchase, allot or issue a unit or share, the acquisition is made when the agreement is completed (that is, the necessary transfer or title documents are delivered and the purchase price is paid in full). Accordingly, the liability for land rich duty arises when the agreement is completed, whether or not the acquisition or interest acquired is registered.
Exemption for restructuring of unit trust for land tax purposes
The amendments confer an exemption from duty in respect of an instrument executed on or after 6 June 2006 and before 1 January 2008 that effects a variation to a trust deed for a unit trust, the purpose of which is to enable the trust to satisfy the criteria for being treated as a fixed trust under the Land Tax Management Act 1956.
Exemptions for land used for primary production
At present, certain duty exemptions apply in respect of land used for primary production. The amendments adopt the land tax definition of land used for primary production, so as to make the tax exemptions consistent.
The amendments extend an exemption that applies in respect of transfers of land used for primary production between family members so that former spouses or de facto partners are considered family members for the purposes of the exemption in certain circumstances.
Amendment of Land Tax Management Act 1956
Classification of trusts as fixed trusts and special trusts, and tax concessions
The amendments provide for certain land tax concessions in respect of unit trusts, as announced by the Treasurer on 6 June 2006.
Under the Land Tax Management Act 1956, if land is the subject of a fixed trust, the tax-free threshold applies in respect of land that is the subject of that trust. If the trust is not a fixed trust, it is treated as a special trust and the tax-free threshold does not apply to land owned by the trust.
The amendments provide that if a trust satisfies the relevant criteria, the beneficiaries of the trust will be taken to be owners of the land. Accordingly, the trust will be taken to be a fixed trust and the trust will be entitled to the tax-free threshold. The relevant criteria are as follows:
a) the trust deed must specifically provide that the beneficiaries of the trust:
i) are presently entitled to the income of the trust, subject only to payment of the trustees proper expenses, and
ii) are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property,
b) the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on any person by the trust deed.
The amendments allow a unit trust that is restructured to comply with the relevant criteria before 1 January 2008 to be treated as a fixed trust in respect of the land tax year commencing 1 January 2006 and subsequent land tax years. The concession applies only if, before the restructuring, the unit holders have fixed entitlements to income and capital distributions under the trust. This concession applies in addition to the duty concession for restructuring of unit trust for land tax purposes.
The amendments allow certain family unit trusts that are not fixed trusts to be excluded from the definition of special trust (and, accordingly, to gain the benefit of the tax-free threshold). The key criteria for classification as a family unit trust are as follows:
a) the trust holds taxable land on 31 December 2005 the taxable value of which does not exceed $1,000,000
b) the unit holders in the trust have fixed entitlements to capital and income distributions under the trust as at 31 December 2005
c) the units in the trust are family-owned as at 31 December 2005.
If a trust is a family unit trust, the unit holders in the trust will be treated as joint owners of the trust’s land.
The amendments relating to trusts will have effect in respect of the 2006 land tax year and subsequent land tax years, as if they had commenced on 31 December 2005.
Average valuations of land and other 2006-2007 Budget measures
The State Revenue and Other Legislation Amendment (Budget Measures) Act 2006 (the Budget measures) changed the method for determining the taxable value of land for land tax purposes.
From the 2007 land tax year, land tax will be based on the average value of land, determined as an average of the land value of the land in the most recent 3 land tax years.
The amendments contained in this Act provide that the average value of rent-protected land and all heritage restricted land will be based on the general 3 year averaging provisions. If land was not heritage-protected in one of the previous years generally used to determine the average value, that year will be disregarded. This is consistent with the rules that apply when land has been recently subdivided.
The Budget measures also changed the method of determining the tax-free threshold for the 2007 land tax year and subsequent land tax years. Under the Budget measures, the tax-free threshold is based on an average of the tax-free threshold for 3 years (with an adjustment for indexation). The relevant provisions of the Budget measures do not commence until 31 December 2006. However, the Valuer-General generally determines and publishes the relevant tax-free threshold for a land tax year in the month of October before the land tax year commences.
The amendments validate the determination and publication on 13 October by the Valuer-General of the relevant figures for the 2007 land tax year in anticipation of the commencement of the relevant provisions of the Budget measures. The 2007 threshold as published by the Valuer-General will be $352,000, the same as for 2006.
Taxation Administration Act 1996
Under the Budget measures, land tax liability for the 2007 land tax year and subsequent land tax years will be based on an average of the land value of land over 3 years. The Act includes an amendment to ensure that if an objection to or appeal against a land tax assessment is made, that objection or appeal does not affect the validity of any land tax assessment for a previous year, even though the earlier land tax assessment may have been based on one or 2 of the same land values as the subsequent assessment.
Amendment of Valuation of Land Act 1916
Under the Valuation of Land Act 1916 a person has a right to object to a land value determination made by the Valuer-General for the purposes of a land tax assessment within 60 days after service of the relevant land tax assessment.
As a consequence of the Budget measures, land tax assessments for the 2007 land tax year and subsequent land tax years will be based on a 3-year average of land values. Accordingly, it will be possible to object to all 3 of the land values on which the land tax assessment is based.
The amendments restrict the entitlement to lodge an objection against a land valuation that is used in calculating an average value if the land valuation concerned has previously been the subject of an objection under the Act. An objection against such a land valuation will be permitted only if the Valuer-General is satisfied that there are special reasons for allowing the objection to be made.
Gaming Machine Tax Act 2001
The amendments clarify, by way of statute law revision, that tax is payable by a registered club with gaming machine profits that exceed $200,000 only on that part of the profits that exceeds $200,000.