New South Wales (NSW) introduces significant changes in land tax

In New South Wales (NSW), stamp duty currently is levied on the sale or transfer of real property. Reforms to the stamp duty regime in NSW for corporate restructure transactions and changes to land tax exemptions have been recently introduced. 

Corporate reconstruction relief amendments

Corporate reconstruction is a strategic process undertaken by a corporate group to reorganise its business structure. For example, under a corporate consolidation, different units of entities are merged under a central corporation for a common commercial objective. 

When a corporate group embarks on a journey to revamp its business structure and property is transferred between corporations within the same group, transfer duty payments could be triggered.

Previously, Section 273B of the Duties Act 1997 offered a 100% exemption for transactions related to corporate reconstructions and consolidation. Entities could seek a full exemption by meeting specific criteria and proving that the transaction is a genuine corporate reconstruction. As long as altering the group's structure or assets was not aimed at evading duties or taxes, no transfer duty would be payable. 

The previous 100% exemption from duty for eligible corporate reconstruction transactions and corporate consolidation transactions now will be replaced with a concession of 90% of the duty that would otherwise be payable.

Significant interest acquisition threshold for private trusts 

To date, landholder duty has been charged on acquisitions of a significant interest in private companies (50% or more), and unit trusts that directly or indirectly hold NSW land with an unencumbered value of AUD 2 million or more. 

The landholder duty “trigger” threshold for private unit trust schemes will be reduced from 50% to 20% for holdings in private unit trusts. However, this threshold can be increased from 20% to 50% for registered wholesale unit trusts.

Changes to principal place of residence land tax exemption 

Under current regulations, a property may be exempt from land tax if one of multiple owners uses it as their principal place of residence, even if they own a small share. However, in future the principal place of residence exemption is only applicable to an individual who occupies the property and owns a minimum of 25% interest in it.

When will the new duty changes come into force?

The new duty changes will take effect on acquisitions completed on or after 01 February 2024, except for those arising from agreements or arrangements made before 19 September 2023. 

The threshold for the principal place of residence exemption for land tax will rise from 1% to 25% on 01 February 2024, with a transition period concluding on 31 December 2025.

Tony Nunes has over 25 years’ experience in providing tax advice to clients, especially on issues affecting cross-border transactions, acquisitions and restructures, and on all aspects of structuring the ownership and financing of corporations and their operations.