The Revenue Legislation Further Amendment Bill 2024 was introduced into parliament on Wednesday 16 October 2024.
The Bill includes amendments to the Duties Act 1997 (NSW) and Land Tax Management Act 1956 (NSW) (the Acts) which provide for the application of those Acts to corporate collective investment vehicles (CCIVs). New South Wales is only the second state to introduce amendments which confirm the treatment of CCIVs for stamp duty and land tax purposes. Victoria amended its duties and land tax legislation to cover CCIVs in June 2023. See our related Insight from 30 May 2023.
The Bill also includes amendments to the Duties Act 1997 (NSW) in respect of the wholesale unit trust regime, broadening the scope of the definition of “qualified investor” which may enable more unit investment funds with assets in New South Wales to meet the conditions to register as a “wholesale unit trust scheme.”
CCIVs
The Bill proposes a model for CCIVs based on the same model adopted by Victoria in June 2023, which appears to be based on the model adopted for income tax; each sub-fund is deemed to be a separate trust for tax purposes.
In line with the position in Victoria, the Bill proposes that, for the purposes of each Act, each sub-fund of a CCIV is taken to be a unit trust scheme of which:
- The CCIV is the trustee
- The business, assets and liabilities referable to a sub-fund are the trust property; and
- The members of the sub-fund are the beneficiaries
Also in line with the position in Victoria, for the purposes of each Act, for a sub-fund deemed to be a unit trust:
- A share in the CCIV that is referable to that sub-fund is taken to be a unit in the unit trust scheme;
- A shareholder of that share, as a member of that sub-fund, is taken to be a registered unitholder of the unit in the unit trust scheme; and
- Any rights, entitlements, obligations and other characteristics attaching to that share are taken, as far as practicable, to be the same rights, entitlements, obligations and other characteristics attaching to the unit.
For the purposes of the Duties Act 1997 (NSW) only, for a sub-fund deemed to be a unit trust:
- A winding up of the sub-fund is taken to be a winding up of the unit trust scheme; and
- A person who has an entitlement, whether directly or through another person, to a distribution of property in the event of the distribution or all the property of the sub-fund is taken to have the same entitlement to a distribution of property in the event of the distribution of all of the property of the unit trust scheme.
As for in Victoria:
- The effect of these deeming rules is that each sub-fund will be subject to duty (in particular, landholder duty) and land tax rules relating to unit trusts. The CCIV itself would appear to be effectively ignored for duty and land tax purposes.
- A CCIV will be taken to be a separate person in its capacity as trustee of each unit trust scheme that is a sub-fund. Consequently, any reallocation of dutiable property from one sub-fund to another sub-fund within the CCIV will be a change in capacity in which a CCIV is taken to hold dutiable property and treated as a dutiable change in beneficial ownership.
- It is also intended that the sub-fund (as a deemed unit trust scheme) could qualify as a public unit trust scheme or apply for registration as a wholesale unit trust scheme, subject to meeting the relevant qualifying criteria.
The proposed amendments will take effect from the day on which the amending Act receives Royal Assent.
It remains reasonable to expect other states and territories will closely follow the Victorian and New South Wales model, although it is expected the Queensland trust acquisition model will require more specific consideration and approach to CCIVs.
Definition of “qualified investor”
The Bill includes proposed amendments to allow the Commissioner to approve more investors as “qualified investors”, which count towards the condition for registered wholesale unit trust scheme status which requires 80% or more of the units in the trust to be held by “qualified investors” (the “80% condition”).
From 1 February 2024, if a unit trust is registered as a wholesale unit trust scheme, it benefits from an increased threshold of 50% (instead of 20%) – associate inclusive - before landholder duty applies to unit dealings in the trust.
Concerns have been raised consistently by the investment fund industry that the definition of “qualified investor” meant only few “wholesale funds” would in practice meet the 80% condition. Their submissions and lobbying for change appear to have been heard.
For domestic investors, the proposed amendments to the definition allow the Commissioner to approve:
- wholly owned vehicles of any domestic investors who are themselves qualified investors (this will mean the New South Wales definition is more favourable than the Victorian equivalent); and
- a statutory body that is: (i) established under a law of the Commonwealth or a State or Territory and (ii) is prescribed by the regulations (we believe this may be to provide some oversight / control of the types of statutory bodies that can be treated as qualified).
For foreign investors, the proposed amendments allow the Commissioner to approve:
- wholly owned vehicles of foreign investors who are themselves investing in a capacity equivalent to the categories of qualified investors open to domestic investors (this will align the New South Wales legislation with the Victorian equivalent); and
- foreign sovereign investors (this will mean the New South Wales legislation is more favourable than the Victorian equivalent).
The amendments are to take effect from 1 February 2024, which opens up the possibility for applying to register funds which become eligible due to this broader definition effective from 1 February 2024.
