NSW Parliament to Change Stamp Duty Laws When Moving Property Into a Trust

Commercial, Property

The State Parliament has introduced a new Bill that will mean changes to property ownership, without duty will no longer be possible after 11 May 2022.

The introduction of the State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 (“the Bill”) will amend the current provisions within the Duties Act 1997 to see Stamp Duty payable when there are certain restructurings to beneficial ownership.

What is the current law?

Currently, Stamp Duty is not payable when you:

  • move land into a unit trust;
  • move land from a discretionary trust to a unit trust;
  • move land from a company to a trust (providing the 50% CGT discount);
  • clone a trust, with CGT, stamp duty and land tax savings;
  • gain multiple Land Tax thresholds;
  • separate assets for asset protections purposes;
  • move land into a SMSF from a trust or company; and
  • move land for estate planning purposes.

What changes will be made starting 12 May 2022?

The actions above will no longer be free from Stamp Duty after the introduction of the Bill, which is expected to receive its Royal Assent on 12 May 2022.

As a result, the Bill will introduce the following changes explained below.

Changes in Beneficial Ownership and Acknowledgement of Trusts

Stamp Duty will now apply when there are changes in beneficial ownership to the land.

Duty will now apply to those transactions “that results in a change in beneficial ownership of dutiable property, other than an excluded transaction”.

A “change in beneficial ownership” is defined under the Bill to include:

  • The creation of dutiable property;
  • The extinguishment of dutiable property;
  • A change in equitable interests in dutiable property;
  • Dutiable property becoming subject to a trust; and
  • Dutiable property ceasing to be the subject of a trust.

The person who obtains the beneficial ownership of the dutiable property will be subject to pay the duty.

This new Bill will essentially change Stamp Duty so that it is charged not only on the transfer of ownership rights to property from one person to another, but also when there is the creation or extinguishment of an ownership right to property.

This means that Stamp Duty may be incurred when:

  • Moving property into a discretionary or unit trust for intended beneficiaries;
  • Changing beneficiaries in a unit or discretionary trust that holds property; or
  • Creating a lease or options to lease or buy property.

The Bill will also cause duty to be payable on statements made by an individual that declare a trust. This was intended to clear confusion caused by the Supreme Court decision in Chief Commissioner of State Revenue (NSW) v Benidorm Pty Ltd.

As outlined above, the Bill captures a very broad range of property movements. Due to this, there is the possibility of unintended consequences arising that were not originally considered by the legislature. As such, we may still see the regulations clarify the operation of these new rules.

Extending the Scope of the “Anti-Avoidance” Rules

Apart from the new Stamp Duty laws, the Bill will also extend the scope of the “anti-avoidance” rules to capture all NSW tax liabilities, including duties, land tax and payroll tax.

Currently these rules aim to penalize individuals who participate in schemes that attempt to reduce or avoid certain tax liabilities.

As mentioned above, the Bill will now extend to capture all NSW taxes and aim to crack-down on individuals who attempt to reduce or avoid their tax liabilities via mechanisms such as trusts, contracts, arrangements or undertakings.

“Promoters” of tax-avoidance schemes who market, encourage its growth or any interest in it will also be targeted under the new laws.

The Government hope that these broad new penalties will act as a deterrent for all individuals from participating in any tax-avoidance schemes.

Please get in touch with Keystone if  you have any queries or require any assistance with transactions of this nature.