There are two Bills before this State's Legislative Assembly which will have significant implications for the taxation of transactions in Western Australia. The two Bills are the Revenue Laws Amendment Bill 2018 (Revenue Bill) and its accompanying Taxation Administration Bill 2018 (Administration Bill). If these Bills are passed in their current form, they will enact the "most comprehensive changes to the Duties Act 2008 since it replaced the Stamp Act 1921 on 1 July 2008."1
One of the most significant amendments will be to the Landholder Duty provisions in the Duties Act 2008 (Duties Act). Landholder duty applies to certain acquisitions (called "relevant acquisitions") in a landholder (being a company or unit trust, entitled to land in Western Australia, of $2 million or more). Duty is assessed on the value of land and chattels held by the landholder (and any linked entities) in proportion to the interest being acquired.
Under the Revenue Bill, new grouping provisions will apply to group:
- an acquisition in a landholder together with an acquisition in another entity that only holds chattels, if the two transactions result from substantially one arrangement. Duty will be assessed on the total value of land and chattels of both entities;
- an acquisition in two or more entities that are not (themselves) landholders but together they are entitled to land in Western Australia of $2 million or more. Duty will be assessed on the combined land value if the transactions result from substantially one arrangement;
- a transfer of chattels which is part of the same arrangement as an acquisition in a landholder;
- acquisitions in two or more entities that together have a direct or indirect interest of 50% or more on a landholder.
These amendments are intended to limit the ability of taxpayers to deliberately structure transactions to avoid (or reduce) the landholder duty that would otherwise be payable. However, the manner in which these amendments have been drafted mean that unsuspecting taxpayers may find themselves with a landholder duty obligation.
The Revenue Bill amendment will also ensure that acquisitions between "related persons" will be subject to landholder duty. The amendments include a discretion for the Commissioner to determine that certain entities are not "related persons" if she is satisfied that the interests in the landholder were:
- acquired independently and will be employed independently; and
- not acquired for a common purpose and will not be employed for a common purpose.
Whilst this discretion may prove useful to some taxpayers, the Commissioner is not able to exercise her discretion where the parties are found to be "related persons" by virtue of them acting in concert or making acquisitions from substantially one arrangement. Unfortunately, it is these taxpayers who are most likely to need the Commissioner's discretion.
Connected Entities Exemption
The connected entities exemption provides duty relief for certain transactions occurring between closely owned corporations and unit trusts that qualify as a "family" (consisting of a parent entity and its subsidiaries). Under the Revenue Bill this exemption will be subject to an automatic revocation if the transferee entity:
- is removed from the family within 3 years; and
- still holds any of the dutiable property for which the exemption was received.
The exception to this rule is where the exit from the family is due to the transferee being floated.
Family Farm Exemption
One proposal which will certainly be welcomed by farming clients is the changes to the family farm exemption from transfer duty. The proposed changes better reflect modern farming business structures and address many of the restrictions which currently prevent the exemption being used in farming succession planning arrangements.
Under the proposed changes, the exemption will apply where:
- a farmer transfers farming property to a related discretionary trust under which the farmer is a beneficiary;
- a farmer transfers farming property to a family member and retains an interest in the entity conducting the farming business on the land;
- a farmer is not conducting a farming business immediately prior to a transfer of farming property to a family member, if the Commissioner is satisfied the farmer had previously conducted the business and a family member (or a related entity) is conducting the business immediately prior to the transfer;
- the partnership that conducts a farming business includes non-family members; and
- if a transferee is a bare trustee, the beneficiaries hold an interest in the related entity that conducts the farming business.
The Revenue Bill proposes several other amendments, including how fixtures are to be treated under the Duties Act and confirming the duty concessions available for transfers of property to:
- a bare trustee;
- a person under the Guardianship and Administration Act 1990; and
- facilitate a subdivision of property.
If the Revenue Bill and Administration Bill are passed in their present form it will transform the duties landscape in Western Australia.
1 From the second reading speak of Mr Ben Wyatt (Minister for Finance) on 29 November 2018
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.