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STATE TAXATION ACTS AMENDMENT BILL 2008

   State Taxation Acts Amendment Bill
                  2008

                        Introduction Print

              EXPLANATORY MEMORANDUM


                                  General
The Bill amends the Duties Act 2000 to provide for--
         ·   increased thresholds for general duty and principal place of
             residence and pensioner concessions;
         ·   removal of the need for an election between the principal place
             of residence concession and the first home owner bonus;
         ·   further duty exemptions;
         ·   greater certainty in relation to the calculation of duty for
             properties that are sold off the plan;
         ·   clarity in respect of the exemption relating to certain
             transactions concerning dutiable property that is subject to a
             unit trust scheme.
The First Home Owner Grant Act 2000 is amended to give an additional
grant to first homebuyers purchasing a newly constructed home in regional
Victoria.
The Land Tax Act 2005 is amended to provide--
         ·   threshold increases, including raising the tax free threshold
             from $225 000 to $250 000 for 2009 and onwards (and from
             a tax free threshold of $20 000 to $25 000 for lands held by
             trusts);
         ·   a rate reduction in the top rate of land tax from 2·5% to 2·25%
             for 2009 onwards;




561172                                1        BILL LA INTRODUCTION 6/5/2008

 


 

· an exemption for property used as long term shared supported accommodation for young people with disabilities. This includes a provision that special land tax will apply if the land subsequently ceases to be used for the exempt purpose as is consistent with existing similar exemptions. The Payroll Tax Act 2007 is amended to-- · reduce the rate of tax applicable from 1 July 2008; · clarify the exemption for non-profit organisations; · modify the grouping provisions; · make some technical amendments to the provisions dealing with payroll tax registration and the calculation of annual payroll tax. Clause Notes PART 1--PRELIMINARY Part 1 of the Bill outlines the purposes of the Bill and contains the commencement provisions. Clause 1 outlines the purposes of the Bill. Clause 2 Subclause (1) provides that the proposed Act comes into operation on the day after the day on which it receives the Royal Assent, except-- · subclause (2) provides that Part 3 and sections 5, 8, 9, 10 and 11 are deemed to have come into operation on 6 May 2008. This is because they relate to measures announced by the Victorian Government on 6 May 2008 as part of its 2008/09 Budget; · subclause (3) provides that sections 12, 13, 20, 22 and 23 come into operation on 1 July 2008. This is because they are measures that relate to a financial year. · subclause (4) provides that section 17(2) comes into operation on 1 January 2009. This is because section 17(2) specifies the increased threshold for special land tax that is reflective of the increased threshold at which general land tax will apply for the 2009 and subsequent tax years. 2

 


 

PART 2--DUTIES ACT 2000 Part 2 of the Bill makes a range of amendments to the Duties Act 2000. Clause 3 Subclause (1) removes the word "exclusively" from section 21(4). This amendment clarifies that, for the purposes of the concession as it applies to multi-lot refurbishments, the consideration calculation will be based on whole of project (or stage) building works completion figures rather than figures relating exclusively to any particular lot. This accords with current industry practice and ensures the calculations take into account the relevant proportion of the costs attributable to common areas (e.g. security, lifts, stairwells). Subclause (1) also repeals section 21(4)(d), which is re-enacted in new section 21(4A). Subclause (2) inserts a new section 21(4A) that requires certain documents to be lodged with the Commissioner before the duty concession in section 21(3) or (4) can be claimed. When the transfer of land is presented to or lodged with the Commissioner, it must be accompanied by-- · a copy of the building permit, or building approval or permit; · a copy of the contract with the transferee for the construction or refurbishment; · a statutory declaration by the transferor, in the approved form, including whether or not the transferor has entered into any agreement with the transferee in respect of works (other than construction or refurbishment) to be undertaken in relation to the land or the lot before the transfer. In addition, the Commissioner may require-- · a statutory declaration in the approved form by the transferee declaring that the transferee has not entered any contract referred to in the contract other than the one declared for the construction of the building or refurbishment of the lot; and · a statutory declaration in the approved form by the person that issued the building permit or building approval. 3

 


 

Clause 4 inserts new sections 21A, 21B, 21C, 21D and 21E. These improve the administration of the off the plan duty concession by simplifying and standardising the calculation process. Section 21A Commissioner may publish a fixed percentage Section 21A(1) provides that, for the purposes of sections 21(3) and 21(4), the Commissioner may from time to time publish percentage amounts being a percentage of the consideration for a transfer of dutiable property that represents the amount paid or payable in respect of construction of a building or refurbishment of a lot on or after the date on which the contract of sale was entered into. The fixed percentage for the land component will be the minimum dutiable value of the property if no construction or refurbishment has commenced. Subsection (2) provides that the Commissioner may publish different percentage amounts for different classes of buildings or refurbishments. Subsection (3) provides that if the Commissioner publishes a percentage under subsection (1), the transferor may use that percentage to determine the amount payable in respect of construction of the building or refurbishment of the lot and if the transferor does so, duty is to be assessed on that basis. Example--Calculations Section 21A allows the Commissioner to set fixed percentage amounts, determined by reference to the building type (e.g. single lot freestanding, multi-lot low rise or high rise). For example, at the date of contract, the total consideration for a land and building package is $500 000 and construction of the house is 20% complete. If the building component for this type of construction was set at 45% and the land component amount was set at 55%, the concession would be calculated as follows: Land 55% of $500 000 $275 000 Building Completed building works 20% of (45% x $500 000) $ 45 000 Consideration for concession purposes $320 000 4

 


 

Duty is payable only on $320 000 rather than $500 000. The amount of the concession is the duty saved on the remaining $180 000 (approx. $10 800). It is expected these percentages will be commonly used as they ensure greater certainty and clarity for all parties, and simplify the calculation process considerably. However the provisions do still recognise some transferors may elect to provide a declaration of the actual costs of construction rather than defer to the fixed percentages. Section 21B Records to be kept Section 21B provides that, if a transferor of dutiable property makes a declaration under sections 21(4A), the transferor must keep, or cause to be kept, all records that are necessary to enable the duty payable on that transfer to be assessed. Section 21C Period of retention Subsection (1) provides that a transferor who is required to keep a record under section 21B must retain the record for not less than 5 years after the date it was made or obtained or the date on which the dutiable transaction occurred, whichever is the later. Subsection (2) provides that subsection (1) does not apply to a transferor if the Commissioner authorises that person, in writing, to destroy the record before the end of the 5 year period. This specifically recognises that a shorter record retention period may be appropriate in certain circumstances. Section 21D Power to require documents Subsection (1) provides that the Commissioner, by written notice, may require a person to produce to him a document that is required to be kept under section 21B. Subsection (2) requires the person to whom a notice is given under subsection (1) to comply with the notice within the period specified in the notice or any extended period allowed by the Commissioner. Section 21E Joint and several liability for additional duty Section 21E provides that where a transferor makes a declaration under section 21(4A) and that declaration is incorrect, the transferor is jointly and severally liable with the transferee for any additional duty payable on the transfer and for any penalty tax or interest. 5

 


 

Example--Joint & Several Liability Because the duty concession is calculated by reference to information supplied by parties in addition to the purchaser, it is an important safeguard of the concession that those parties take all reasonable care to provide accurate information. For example, where incorrect information accompanies a transfer, and an additional amount of duty is assessed as payable sometime after settlement, the joint and several liability provisions will apply to that additional amount of duty. Clause 5 increases the thresholds in the general duty rate scales by amending the table under section 28(1) of the Duties Act 2000. Clause 6 makes consequential amendments to section 32V of the Duties Act 2000, updating the references to the off the plan provisions according to the current amendments made by clauses 3 and 4. Clause 7 substitutes section 36B of the Duties Act 2000, which deals with property passing to beneficiaries under unit trust schemes. The purpose of these amendments is to clarify the scope of the exemption available under section 36B, similar to the approach under sections 36 and 36A. The new provisions are the same as the "substituted" section 36B, with these exceptions: · The reference to "scheme" where occurring now becomes a reference to "principal scheme". · Original subsection 36B(1)(f) is not replicated. · Subsection (2) represents the main amendments and clarifies the scope of the exemption available, in that the transfer must be to the unitholder-- (a) absolutely if the unitholder is a natural person or a corporation all of the shareholders of which are natural persons who were shareholders of the corporation at the relevant time; or (b) as trustee of a fixed trust, of which all the beneficiaries are natural persons who were beneficiaries of the fixed trust at the relevant time or a corporation all the shareholders of which are natural persons who were shareholders of the corporation at the relevant time-- being natural persons or a corporation that do not hold their interests in the fixed trust as trustee of another trust; or 6

 


 

(c) as trustee of a discretionary trust, of which all the beneficiaries are natural persons who were relevant beneficiaries of that discretionary trust at the relevant time or who became a beneficiary after the relevant time by reason of becoming a spouse or domestic partner, an adopted child or step child, or being a lineal descendant of a beneficiary within a class of beneficiary described in the discretionary trust or a corporation all the shareholders of which are natural persons who were shareholders of the corporation at the relevant time and who were relevant beneficiaries of that discretionary trust at the relevant time-- being natural persons or a corporation that do not hold their rights, entitlements or interests in the discretionary trust as trustee of another trust; or (d) as trustee of a unit trust scheme of which all the unitholders are natural persons who were unitholders of that unit trust scheme at the relevant time or a corporation all the shareholders of which are natural persons who were shareholders of the corporation at the relevant time-- being natural persons or a corporation that do not hold their units in the unit trust scheme as trustee of another trust; or (e) as trustee of a superannuation fund, of which all the beneficiaries were beneficiaries of the superannuation fund at the relevant time. · Original subsections 36B(3) is not replicated. · Subsection (5) defines relevant beneficiary and relevant time for the purposes of section 36B. Clause 8 inserts a new section 38A into Part 5 of Chapter 2 of the Duties Act 2000, which introduces a new exemption for special disability trusts. Subsection (1) provides that no duty is chargeable in respect of a declaration of trust that establishes a special disability trust or on a transfer of dutiable property to the trustee of a special disability trust if the circumstances under subsection (2), (3) and (4) are satisfied. 7

 


 

Subsection (2) provides that the person declaring the trust or the transferor of dutiable property must be an immediate family member of the principal beneficiary of the special disability trust. Subsection (3) provides that there must be no consideration for the declaration or transfer. Subsection (4) provides that for the exemption to apply, the dutiable value of the dutiable property should not exceed the threshold of $500 000. Subsection (5) allows for the apportionment of dutiable property, so that duty is chargeable on the declaration of trust or transfer only in respect of the where the dutiable value of the property that exceeds the $500 000 threshold. Subsection (6) defines immediate family member, principal beneficiary, Social Security Act, special disability trust and Veteran's Entitlements Act for the purposes of section 38A. Clause 9 increases the thresholds for the principal place of residence concession. Subclause (1) increases the threshold under section 57I(1)(d). Subclause (2) increases the thresholds in the duty rate scales for the principal place of residence concession by amending the table under section 57J. Subclause (3) repeals section 57O of the Duties Act 2000, thereby removing the requirement for a transferee to make an election between receiving the principal place of residence concession or an additional amount under the First Home Owner Grant Act 2000. Clause 10 increases the thresholds for the eligible pensioner concession under sections 59(1)(b) and 59(2)(b). These amendments also adjust the formula used to calculate the concession under sections 59(3) and 60(3). Subsection (2) inserts references to section 18(2A) of the First Home Owner Grant Act 2000 (regional bonus) to ensure that the election between receiving the eligible pensioner exemption/concession or the "regional bonus" being introduced by this Bill is extended in the case of an eligible pensioner who is eligible to receive both. Clause 11 makes consequential changes to the formulae used to calculate the first home owner concession under sections 62(3), 62(4) and 63(3) in the Duties Act 2000, which reflect the amendments made under clauses 5, 9 and 10. 8

 


 

Subsection (2) inserts references to section 18(2A) of the First Home Owner Grant Act 2000 (regional bonus) to ensure that the election between receiving the eligible first home owner exemption/concession or the "regional bonus" being introduced by this Bill is extended in the case of an eligible first home owner who is eligible to receive both. Clause 12 introduces a new exemption under Part 2 of Chapter 11 of the Duties Act 2000 where a stapled entity is reorganised by way of the interposition of a head trust between the existing stapled security holders and the stapled entity. The exemption consists of a new Division 1B. Section 250DH provides definitions, for the purposes of this Division, of the following terms-- exchanging members has the same meaning as in section 124-1045(1)(d) of the ITAA; interposed trust means a unit trust scheme that is interposed between the exchanging members and the stapled entities in the course of, or as a result of, a roll-over; ITAA means the Income Tax Assessment Act 1997 of the Commonwealth; listed in relation to the shares or units in a stapled entity, means listed for quotation on the Australian Stock Exchange or a recognised stock exchange; ownership interest has the same meaning as in section 125-60 of the ITAA; public float means a share float or an offer of units to create a public unit trust scheme-- (a) the shares or units of which are quoted on the Australian Stock Exchange or a recognised stock exchange and are offered to the public generally; and (b) of which the issue of the shares or units to the public does not give any person and their related persons (other than the corporate entity that floated the shares or units) a combined beneficial interest in the floated entity greater than 20%; and (c) that is not part of a scheme for the purpose of minimising duty otherwise payable under this Act; 9

 


 

roll-over means a roll-over that occurs on or after 1 July 2008 in the circumstances set out in section 124-1045 of the ITAA and meets the conditions under that provision; stapled entity has the same meaning as in section 124-1045(2) of the ITAA. 250DI Exemption for relevant acquisitions Subsection (1) provides that an exchanging member who makes a relevant acquisition to which section 80 applies in the course of, or as a result of, a roll-over may apply to the Commissioner for an exemption under this Division. Subsection (2) requires the Commissioner to grant an exemption from duty on the relevant acquisition if the Commissioner is satisfied that-- · the relevant acquisition was made in the course of, or as a result of, a roll-over; and · the shares or units in the stapled entities to which the roll-over related were listed at the time the relevant acquisition was made or are intended to be listed within a period of 3 years commencing on the day on which the relevant acquisition was made; and · the relevant acquisition did not arise from arrangements or a scheme devised for the principal purpose of taking advantage of the benefit of this section; and · the conditions of the exemption, if any, will be met by the applicant. Subsection (3) provides that if duty has been paid on the relevant acquisition, the Commissioner must refund any duty paid that, by reason of the exemption, is not payable. 250DJ Conditions of exemption An exemption granted under this Division is subject to any conditions specified by the Commissioner and if an exemption is granted, the conditions of the exemption are binding on each exchanging member. 10

 


 

250DK Revocation of exemption Subsection (1) enables the Commissioner to revoke the exemption in certain circumstances-- · the interposed trust does not retain all its ownership interests in the stapled entities for a period of at least 3 years commencing on the day on which the relevant acquisition was made; or · the relevant acquisition was not made in the course of, or as a result of, a roll-over; or · the exemption was granted based on false or misleading information in a material particular provided to the Commissioner by an exchanging member or the trustee of the interposed trust; or · the relevant acquisition arose from arrangements or a scheme devised for the principal purpose of taking advantage of the benefit of section 250DI. Subsection (2) qualifies the operation of subsection (1)(a). Subsection (1)(a) does not apply if the Commissioner is satisfied that the interposed trust does not retain its ownership interests in the stapled entities by virtue of-- · a public float of any of the stapled entities that occurred within 12 months after the day on which the relevant acquisition was made; or · the shares or units of any of the stapled entities being unstapled to enable the winding up of that entity; or · the winding up of any of the stapled entities. Clause 13 makes consequential amendments to sections 250F and 250G to accommodate the insertion of Division 1B; substitutes sections 250I and 250J by adding "an exchanging member or the trustee of the interposed trust in the case of an exemption under Division 1B"; and amends section 250L by inserting in subsection (1) "or the relevant acquisition (as the case may be)" and in subsection (2) "or the relevant acquisition was made". 11

 


 

Clause 14 inserts a new clause 27 in Schedule 2 to the Duties Act 2000 dealing with transitional provisions. Clause 27(1) provides that sections 21 and 21A to 21E, as inserted by this Bill, apply to the transfer of dutiable property if the contract of sale of the land is entered into on or after 1 October 2008. Clause 27(2) provides that section 21, as in force immediately before the commencement of clause 3 of this Bill, continues to apply to the transfer of dutiable property if the contract of sale of the land is entered into before 1 October 2008. Clause 27(3) provides that section 28(1), as amended by this Bill, applies to a dutiable transaction that occurs on or after 6 May 2008. Clause 27(4) provides that section 28, as in force immediately before the commencement of Clause 5 of this Bill, continues to apply to the transfer of dutiable property if the contract of sale of the property is entered into before 6 May 2008. Clause 27(5) provides that section 32V, as amended by this Bill, applies to a relevant transaction (within the meaning of section 32V) if the date of the relevant transaction is on or after 1 October 2008. Clause 27(6) provides that section 32V, as in force immediately before the commencement of clause 6 of this Bill, continues to apply to a relevant transaction (within the meaning of section 32V) if the date of the relevant transaction is before 1 October 2008. Clause 27(7) provides that section 38A, as inserted by this Bill, applies to a declaration of trust or transfer of dutiable property that occurs on or after 6 May 2008. Clause 27(8) provides that Division 4A of Part 5 of Chapter 2, as amended by this Bill, applies to a PPR transfer of dutiable property executed on or after 6 May 2008. Clause 27(9) provides that sections 59 and 60, as amended by this Bill, apply to contracts executed by eligible pensioners on or after 6 May 2008. Clause 27(10) provides that sections 62 and 63, as amended by this Bill, apply to contracts executed by eligible first home owners on or after 6 May 2008. Clause 27(11) provides that a taxpayer is entitled to a refund of any duty paid on or after 6 May 2008 that is not payable because of subclause (3), (4), (7), (8), (9) or (10). 12

 


 

PART 3--FIRST HOME OWNER GRANT ACT 2000 Part 3 of the Bill makes amendments to that part of the First Home Owner Grant Act 2000 dealing with the amount of the grant and provides for an additional grant for newly constructed homes in regional Victoria (regional grant). Clause 15 amends section 18 of the First Home Owner Grant Act 2000 by inserting a new section (2A) to provide for the availability of an additional $3000 regional grant in addition to any amount payable under subsections 18(1) and (2) if certain circumstances are satisfied, being-- · the consideration for the eligible transaction does not exceed $500 000; and · the commencement date of the eligible transaction is on or after 6 May 2008 and before 1 July 2009; and · the eligible transaction is a contract for the purchase of new residential premises or an eligible transaction referred to in section 13(1)(b) or (c) of the First Home Owner Grant Act 2000; and · the land on which the premises or home is or will be situated is in regional Victoria. Subsection (2) inserts references to section 18(2A) to ensure that where an eligible pensioner or eligible first home owner have made an election to receive an exemption/concession under the Duties Act 2000, he or she is not entitled to an amount representing the regional grant. Section 18(7) of the First Home Owner Grant Act 2000 is repealed, thereby removing the qualification that a transferee is not entitled to receive any amount under subsection (2) if the transferee had made an election to receive the principal place of residence concession under the Duties Act 2000. Subclause (3) defines regional Victoria for the purpose of the regional grant and repeals the definition of PPR transfer. Clause 16 inserts new Schedule 1 after Part 4 of the First Home Owner Grant Act 2000. The Schedule sets out the municipal councils whose municipal districts are in regional Victoria for the purposes of the regional grant. 13

 


 

PART 4--LAND TAX ACT 2005 Part 4 of the Bill inserts a new exemption from land tax into the Land Tax Act 2005 and amends the rates and thresholds for the 2009 and subsequent tax years. Clause 17 amends section 30 which deals with special land tax. Subclause (1) makes land that is exempt land under section 76A, as a residential service for people with disabilities, liable to special land tax when that land ceases to be exempt land. Subclause (2) increases the threshold in section 30(2)(a) from $224 999 to $249 999. Clause 18 Inserts a new section 76A. Subclause (1) provides that land which is occupied, or currently available for occupation, as a residential service within the meaning of the Disability Act 2006 is exempt land. This exemption applies to land that is used as long term shared supported accommodation for young people with disabilities. Subclause (2) requires an owner to apply for this exemption and to provide any information the Commissioner may request for the purposes of determining if the land should be exempt. Subclause (3) enables the Commissioner to assess part of the land that is not used for the exempt purpose, unless another exemption applies to that part. Clause 19 inserts new tax rates for the 2009 and each subsequent tax years. Subclause (1) provides that Table 1.3 will not apply to the tax years subsequent to the 2008 tax year. This is because there will be new rates for 2009 and subsequent tax years. Subclause (2) inserts a new clause and new table 1.4 which specify amended rates of land tax will apply for the 2009 and subsequent tax years. Table 1.4 reflects that there will be no tax payable if the total value of the unimproved value is less than $250 000. It also reflects the adjustments of the land tax brackets from $540 000 to $600 000, $900 000 to $1 000 000, $1 620 000 to $1 800 000, $2 700 000 to $3 000 000 and a reduction in the top rate from 2·5% to 2·25%. Subclause (3) provides that Table 2.2 will not apply to the tax years subsequent to the 2008 tax year. This is because there will be new rates of land tax on transmission easements for 2009 and subsequent tax years. 14

 


 

Subclause (4) inserts a new clause and new table 2.3 which specify amended rates of land tax on transmission easements which will apply for the 2009 and subsequent tax years. Table 2.3 reflects that there will be no tax payable if the total value of the unimproved value is less than $250 000. It also reflects the adjustments of the land tax brackets from $540 000 to $600 000, $900 000 to $1 000 000, $1 620 000 to $1 800 000 and $2 700 000 to $3 000 000. Subclause (5) provides that Table 3.3 will not apply to the tax years subsequent to the 2008 tax year. This is because there will be new rates of tax for trust land in the 2009 and subsequent tax years. Subclause (6) inserts a new clause and new table 3.4 which specify amended rates of land tax for trust land which will apply for the 2009 and subsequent tax years. Table 3.3 reflects that there will be no tax payable if the total value of the unimproved value is less than $25 000. It also reflects the adjustments of the land tax brackets from $225 000 to $250 000, $540 000 to $600 000, $900 000 to $1 000 000, $1 620 000 to $1 800 000, $2 700 000 to $3 000 000 and a reduction in the top rate from 2·5% to 2·25%. PART 5--PAYROLL TAX ACT 2007 Clause 20 amends the exemption for non-profit organisations. Under the former Pay-roll Tax Act 1971, an exemption was available for organisations that are charitable at common law, yet having non-charitable purposes that are ancillary. The current provision in the Payroll Tax Act 2007 could be interpreted to be more restrictive due to the requirement for an organisation to have wholly charitable purposes. The amendment confirms that a non-profit organisation that has primarily charitable, benevolent, philanthropic or patriotic purposes qualifies for exemption. The amendment does not affect the existing requirement that the wages must be paid or payable to a person engaged exclusively in work of a kind ordinarily performed in connection with the charitable, benevolent, philanthropic or patriotic purposes. Clause 21 repeals a provision which groups a trustee company with other companies as if the companies were related bodies corporate under the Corporations Act 2001 of the Commonwealth. Although a trustee company may still be grouped with another company under the other grouping provisions, such as use of common employees or commonly controlled businesses, it will no longer be required to treat the trustee company and the other companies as related bodies corporate. As a result, the 15

 


 

Commissioner will have a discretion to exclude the trustee company from the group. Clause 22 modifies the grouping provisions in the Payroll Tax Act 2007 so that when two or more members of a group, when considered together, have a controlling interest in a business, all the members of the group and the person or persons who carry on that business will together constitute a group. Clause 23 updates the weekly wage amount at which point employers are required to register for payroll tax to correspond with the annual threshold amount. Clause 24 amends the formulas in clauses 4, 5, 8 and 9(2) in Schedule 1 used for calculating annual payroll tax liability to account for leap years. Clause 25 reduces the rate of payroll tax from 1 July 2008 from 5% to 4·95%. Clause 26 ensures that the amendments to the formulas in clause 24 apply to the financial year commencing 1 July 2007 (as the 2007-08 financial year incorporates the month of February of a leap year). Clause 27 amends the headings in clauses 4 and 8 in Schedule 1 so that the clause heading corresponds with the clause content, which relate to employers with total taxable wages that are not more than the threshold amount, rather than under the threshold amount. PART 6--REPEAL OF AMENDING ACT Clause 28 provides for the automatic repeal of this Act on 1 January 2010. The repeal of this Act does not affect in any way the operation of the amendments made by this act (see section 15(1) of the Interpretation of Legislation Act 1984). 16

 


 

 


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