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Stamp duty: big traps laid in new legislation

Stamp duty: big traps laid in new legislation

Draft legislation released last week reveals major changes to land-rich duty that could impact transactions and potentially impose duty on share transfers involving companies with relatively modest landholdings.

Draft legislation released last week by the NSW Government revealed major changes to land-rich duty that could significantly impact transactions and potentially impose duty on share transfers involving companies with relatively modest landholdings.


The changes, most of which will come into effect on 1 July this year, look suspiciously like a revenue raising exercise, Deacons partner Peter Norman said.


The new legislation would potentially place a lot more transactions in categories where the higher rate of stamp duty would need to be paid, he added.


A transfer of shares in a private company in NSW attracts a stamp duty charge of 0.6 per cent, but if the company in question is land-rich, and the transfer of shares is more than 50 per cent, that charge increases to 5.5 per cent.


“The difference is that previously, in order to be land-rich, 60 per cent or more of the company’s assets had to be land,” Norman said.

“Now all that’s required is that the company has land worth $2 million. That’s a trap.


“You could have a manufacturing company that might just own the land on which the company is located. It is not land-rich because it has all these other valuable assets. 


“But if that land is worth $2 million and there is a transfer of shares, you will be hit for all this extra stamp duty that you weren’t expecting.”


The other big “trap”, Norman said, was that under the previous legislation the higher stamp duty rate only applied to private companies and private trusts. 


The changes now enable the higher percentage of stamp duty to be charged when there is a transfer of shares in a public company, but the transfer has to be more than 90 per cent.


“That could be a significant and unexpected addition of stamp duty to the cost of the transaction,” Norman said. 


The NSW government had followed the lead of the West Australian government, which had already introduced a similar system.

“With these changes there is potential for a lot more acquisitions to be brought within the scope of that higher stamp duty.”


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