Stamp duty / land tax changes in NSW mini budget

On 6 April 2004, the NSW Treasurer announced a mini budget for 2003/2004 financial year. Included in that mini budget are some significant changes to stamp duty and land tax.

Draft legislation is not yet available for review and a detailed commentary on the changes must await the release of this legislation. However, based on the Treasurer’s remarks and information from the Office of State Revenue it is possible to provide some comments and these are set out below.

Vendor Transfer Duty

  • Stamp duty of 2.25% will apply to the whole price for sales of property:
    • other than a principal place of residence or farm.  Consequently, the new stamp duty impost will apply to commercial and retail properties and the limited "principal residence" exemption means that residential investment properties will also be caught. There will be a basic requirement of 2 years’ occupation to qualify for principal residence exemption, with some related concessions similar to capital gains tax exemptions for principal residence.
    • where the contracts are executed on or after 1 June 2004
    • where the sale price exceeds the purchase price by more than 12% with the duty phasing in between 12% and 15%
  • The implementation of this new duty raises a wide range of issues which include:
    • there is an exemption for sales of "new dwellings" by "builders and developers" and this includes "off the plan sales". The definition of these terms and the width of the exemption are unclear. Will there be a concept of substantial renovation as in the GST law? Must there be a business of development to qualify?
    • will the duty be limited to "sales" as such? What about declarations of trust and gifts of property?
    • can a vendor pass the duty on to a purchaser through the contract?
    • if the vendor can and does pass the duty on to the purchaser will this increase the stamp duty payable by the purchaser and, if the sale is a taxable supply, the GST payable by the vendor?
    • what document(s) will need to be stamped to confirm payment of this duty and when will the duty be collected? Can the vendor pay it out of the sale proceeds on completion or will the vendor have to find funds to pay it following exchange and before settlement so that a stamped transfer can be handed over?
    • how will this change the mechanics of the conveyancing process and its timing?
    • what is the cost base for determining the 12% profit threshold? How will this be calculated where vacant land is developed and subdivided by strata or community title? How will it apply to improvements? For example if a purchaser pays $1million for a property, spends $1 million on redevelopment and sells for $1.8 million, is the duty attracted?
    • what sort of records have to be kept to substantiate the calculation of the duty? What if those records have not been kept?
    • what will be the duty’s relationship with capital gains tax?

First Home Buyers

  • No stamp duty on purchases of:
    • dwellings up to $500,000
    • vacant residential land up to $300,000
  • Discounts on stamp duty will be available for:
    • dwellings between $500,000 and $600,000
    • on vacant land between $300,000 and $450,000
  • The changes will apply to contracts executed on or after 3 April 2004.

The OSR has approved the rescission and re-exchange of contracts exchanged before 3 April 2004 which would otherwise qualify.

3 Properties in Excess of $3,000,000

  • Duty will increase to 7% for that part of the purchase price in excess of $3,000,000
  • This appears to apply only to "residential property" whether or not to be occupied by the purchaser.
  • The duty applies to contracts executed on or after 1 June 2004.

Land Tax

  • The land tax threshold is abolished from the 2005 land tax year.
  • The single land tax rate of 1.7% is replaced with the following scale:
    • 0.4% up to land value of $400,000
    • $1,600.00 plus 0.6% on land value between $400,001 and $500,000
    • $2,200.00 plus 1.4% on land value above $500,000

Premium Property Tax

  • The Premium Property Tax has been abolished from the 2005 tax year.

It is clear that much about the content and effect of these changes remains unclear. This applies particularly to the vendor transfer duty. These questions must await the release of draft legislation and we will provide further comments at that time.