Stamp Duty: Aggregation of Dutiable Transactions by Paul Anderson | February 2007
NSW Parliament has recently passed legislation which limits the circumstances in which the Chief Commissioner can aggregate dutiable transactions for stamp duty purposes. The State Revenue Amendment (Tax Concession) Act 2006 received assent on 2 November 2006 and amongst other things amends Section 25 of the Duties Act 1997.
Present Regime Section 25(1) presently provides as follows: “(1)
Dutiable transactions relating to separate items of dutiable property, or separate parts of, or interests in, dutiable property are to be aggregated and treated as a single dutiable transaction if: (a)
they occur within 12 months, and
(b)
the transferee is the same or the transferees are associated persons, and
(c)
the dutiable transactions together form, evidence, give effect to or arise from what is, substantially, one arrangement relating to all of the items or parts of, or interests in, the dutiable property.”
‘Associated person’ is broadly defined in the Dictionary to the Act. Natural persons are associated persons if they are related, ie if any of the following relationships exist – spouses, de facto partners, parent and child, brothers, sisters or brother and sister. The definition also extends to the relationship between natural persons and private companies, partnerships and trusts, with which they are involved in various specified capacities. The effect is that the Chief Commissioner can aggregate several transactions into one. Under Subsection (3), the the dutiable value of aggregated dutiable property is the sum of the dutiable values of the items or parts of, or the interests in, the dutiable property. The result is that duty is payable on the aggregated value, normally at a higher rate, leading to an increase in the stamp duty payable.
History As is often the case with revenue statutes, Section 25 was originally introduced some time ago to defeat a perceived scheme to “defraud” the revenue. A particularly creative tax planner came up with the following ploy. Normally, on the purchase of a property for $1m, the stamp duty payable is $40,490. In the particular instance, the parties to the purchase exchanged 20 contracts, each for the sale of a one undivided 20th interest in the property for $50,000. The stamp duty payable on a purchase of $50,000 is $765 so that the total stamp duty payable by the purchaser was $765 x 20 = $15,300 or a saving of $25,190.
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The incentive for the vendor to join in the transaction was no doubt a higher price for the property than its normal market value. The passing of Section 25 meant that the Chief Commissioner could aggregate the 20 Contracts and treat them as a single transaction for stamp duty purposes, i.e. one purchase for $1m.
Further example However, Section 25 was soon applied to a different set of circumstances, as set out in the following example. XYZ Development Pty Limited is a developer. Its business model is to purchase approximately 4 older style, adjoining suburban houses which it then demolishes before constructing a block of home units for resale as separate apartments. Within a 1 month period, XYZ Development Pty Limited contracts to purchase 4 adjoining houses, each for the sum of $400,000. The vendors are unrelated to each other and have no prior connection with XYZ Development Pty Limited. Normally, the stamp duty payable on the purchase of a property for $400,000 would be $13,490. Where 4 properties are involved, the total stamp duty is $13,490 x 4 = $53,960. However, the Chief Commissioner invokes Section 25 and claims that stamp duty should be calculated on the aggregated value of $1,600,000. The stamp duty on $1,600,000 is $73,490, i.e. an increase of $19,530.00 or 36%. There may be some doubt as to whether Section 25 was intended to cover this situation but certainly the increased revenue led the Chief Commissioner to invoke the section on a regular basis.
Amendment Subsection (1)(ab) has now been added to Section 25 in the following terms: “The transferor is the same or the transferors are associated persons, and”. The effect of the amendment is that the Section can only apply if the same transferor or an associated person is involved, as well as the same transferee or an associated person. The result is that the Section will continue to apply to the first example of contracts splitting given above, but will not apply to the second example of XYZ Development Pty Limited.
Further Amendment Previously, Subsection 2 of Section 25 gave the Chief Commissioner a general discretion to decline to aggregate transactions under the Section. Instead, Subsection 2 now makes it clear that dutiable transactions are not to be aggregated in certain circumstances. Subsection 2 is now in the following terms: “Dutiable transactions are not to be aggregated under this Section if the Chief Commissioner is satisfied that:
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(a) (b)
(c)
the dutiable property to which the transactions relate are comprised of separate allotments of vacant land; and the transferee is a person authorised to contract to do residential building work under the Home Building Act 1989; and the transferee intends to construct residential premises on the allotments for the purposes of sale to the public.”
Subsection 8 has also been added to clarify exactly what is meant by “vacant land” in subsection 3. Subsection 8 is in the following terms: “In this section, vacant land includes land that the Chief Commissioner considers is substantially vacant apart from there being on that land the remnant of any building, or any other object or structure, that the Chief Commissioner is satisfied has been preserved because of its heritage significance.”
Conclusion The two concessions set out in the amendments are certainly of value to developers. Hopefully, the cost savings will be passed on to home buyers on the sale of homes and home units following the re-development of properties.
For more information, please contact: Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au
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