When GST was introduced in 2000, this was meant to replace more inefficient state taxes. Over the years various timetables have been set by law for their abolition, and most Australian states have gone further down that path than NSW.
The NSW Treasurer announced a further extension of NSW State taxes in his June 12 budget, to compensate for GST revenue not keeping pace with government services costs.
Firstly this included an extension from the scheduled 1 July expiry date of loan security duty, being stamp duty on loans secured over property in New South Wales, other than residential property. NSW is the only State where this particular duty remains, and it also causes difficulties where clients arrange a loan secured over property in several States.
Secondly, the abolition of duty on certain business asset transfers (including transfers of shares in private companies) has also been postponed.
Thirdly, the Treasurer has raised the possibility of a new tax on developed real estate to fund fire and emergency services costs, in place of the existing insurance tax which only applies to those who have insurance. This particular proposal would raise, for the first time, the prospect of regular valuations of improved property, compared to the unimproved land value used for rates and land tax purposes.
It would be interesting to see whether such a tax is subject to the various special arrangements that also apply to land tax, including the threshold concessional amount of $396,000 for individuals and for trusts which meet the requirements to be a "fixed trust" for NSW land tax purposes.
With State taxes seemingly a long term fixture in NSW, land holders should be considering whether their existing trusts may be brought within the concession and the desirability of new trusts being established so as to meet the exemption conditions.
The exemption conditions for a unit trust effectively require upgrading of the rights of unit holders so that each unit holder has a veto over most matters. That may be unsuitable for unit trusts having participants outside immediate family.
The requirements for the land tax friendly trust also include a reduction in the flexibility normally contained in a unit trust deed, including restrictions on accumulation of income, redemption of units and other similar steps.
The conversion of existing unit trusts to be "land tax friendly" is a possibility for some trusts, but having regard to potential Capital Gains Tax and other issues, it is important to select the right form of unit trust at the beginning of a venture.
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.
