This article was written by Katrina Parkyn and Ari Rosenbaum.
On 29 November 2018, the Revenue Laws Amendment Bill 2018 (the Bill) was introduced into the Western Australian Legislative Assembly.
The Bill significantly expands the range of transactions that attract duty in Western Australia and represents the most comprehensive changes to the Western Australian stamp duty regime since the current Duties Act 2008 (WA) (Duties Act) commenced on 1 July 2008.
Expanding the duty base by extending the definition of “land”
The definition of “land”, for both transfer duty and landholder duty purposes, is being expanded.
Land to include “anything fixed to land”
Under the proposed changes, the definition of land will be expanded to include “anything fixed to land”, whether or not it is:
- a fixture at law;
- owned separately from the land; or
- notionally severed or considered to be legally separate from the land as a result of the operation of any law.
A thing will be taken to be “fixed to land” if it has a “physical connection to the land or is buried or partly buried under the surface of the land”.
Prior to the introduction of the Duties Act on 1 July 2008, the landholder provisions of the former Stamp Act 1921 defined land to include “anything fixed to the land”. This was not replicated in the Duties Act, until now.
In the former Stamp Act, the phrase used was “fixed to the land”. The new provision uses the phrase “fixed to land”. The difference is subtle, but important.
It would seem to suggest that a thing that is “fixed” to land in the physical sense will be land for duty purposes even if the owner of the thing does not otherwise have any interest in the land to which the thing is fixed.
This is a significant extension to the concept of what is land, for both transfer duty and landholder duty purposes.
Take, for example, a pipeline which is situated on (and in all relevant senses “fixed” to) land, but the pipeline owner does not have an interest in that land. Say the pipelines are installed pursuant to a statutory right which does not amount to an interest in land. The proposed changes would appear to treat this pipeline as land for duty purposes, even if its legal characterisation for all other purposes (including income tax) is that it is a chattel.
This is only one example. There are plenty of others. The point is that the phrase “fixed to land” is likely to result in a range of assets being treated as land for duty purposes that would have, until now, been classified as chattels.
A number of other states have had “fixed to the land” type provisions in their legislation for many years, but the proposed Western Australian changes would seem to go further than that which exists elsewhere. It represents a significant and, in many ways, quite radical departure from traditional notions of the types of assets that will be regarded as land for duty purposes.
Taxpayers who are considering transactions involving assets located in Western Australia should consider their duty position afresh in light of these changes, even for transactions of a type that they have carried out many times before.
Fixed infrastructure rights
The Bill further extends the definition of dutiable property to include various rights relating to “fixed infrastructure”.
Broadly, this is designed to cover:
- rights that authorise access to or the use of any land for any purpose associated with fixed infrastructure – called a fixed infrastructure access right; or
- rights that enable the holder to have day-day control, and the operation or use of fixed infrastructure – called a fixed infrastructure control right; or
- licences, permits and authorities issued under a written law or a law of the Commonwealth that authorise ownership, control, operation or use of fixed infrastructure – called a fixed infrastructure statutory licence.
The concept of “fixed infrastructure” is directed at things which are fixed to land (i.e. those things that are now deemed to be land).
The changes are designed to ensure that stamp duty will apply where a person effectively acquires ownership of fixed infrastructure through a licence or contractual arrangement rather than through an outright purchase.
There are circumstances where the acquisition of the fixed infrastructure rights is the most valuable aspect of a wider transaction, especially if a transfer of underlying freehold is not contemplated or possible, for whatever reason. As stamp duty was not always previously payable on fixed infrastructure rights, the changes proposed by the Bill may result in significantly higher amounts of stamp duty being payable than was previously the case.
Derivative mining rights
In Commissioner of State Revenue v Abbotts Exploration Pty Ltd, the Court of Appeal of the Supreme Court of Western Australia confirmed that certain rights in respect of exploration licences were not dutiable property because they were not an “estate or interest in land”.
The Bill seeks to bring such rights back into the duty base by expanding the concept of dutiable property to include “derivative mining rights” (DMRs). A DMR is an authorisation of a kind described in section 118A of the Mining Act 1978 (whether or not the authorisation purports to be made under that section).
In a positive sign, however, as part of the regime that imposes duty on DMRs, the Bill also proposes to introduce provisions that, in certain circumstances, take into account the effect that a DMR (existing or proposed) has on the value of a mining tenement. This is significant because currently, where a mining tenement is transferred, stamp duty is usually assessed on the value of the tenement ignoring the impact of any DMRs on the value of the tenement, even where those DMRs are separately owned.
Extending the landholder duty regime
Under the current provisions of the Duties Act, landholder duty applies to a “relevant acquisition” in a “landholder”. A “landholder” is defined as a company or unit trust that is entitled to land in Western Australia with a value of $2 million or more. Duty is assessed on the value of the underlying land and chattels held by the landholder and any linked entities in proportion to the interest being acquired.
Under the current rules, the acquisition of interests in entities that own only chattels (no land) attracts no duty. As a result, where land is held by an entity and chattels are held by another entity, less duty may be payable than if the land and chattels were held by a single entity.
Acquisitions resulting from one arrangement
The Bill introduces new provisions to apply duty to the following transactions that were previously not subject to duty:
- acquisitions in an entity that only holds chattels if aggregated with the acquisition of an interest in a landholder;
- transfers of chattels, if aggregated with an acquisition of an interest in a landholder;
- acquisitions in two or more entities that are not landholders individually but together are entitled to land valued at $2 million or more; and
- acquisitions in two or more entities that together have a direct or indirect interest of 50 per cent or more in a landholding entity.
Landholder duty base
Consistent with the proposed changes for transfer duty purposes, the amendments to the definition of land will apply for landholder duty purposes. In addition, fixed infrastructure rights (subject to certain exceptions) and DMRs will be landholdings.
A landholder’s entitlement to land may be held indirectly through a “linked entity”. Under the current rules, an entity is linked to another entity if it has an interest in the other entity of at least 90 per cent (for listed entities) or at least 50 per cent (for unlisted entities). The Bill contains provisions extending the current definition of “linked entity” to include, for unlisted entities, an interest of 50 per cent, whether direct or indirect (eg through multiple ownership chains).
In determining whether a liability to landholder duty arises and the quantum of that liability, the interests in a landholder held by “related persons” may need to be taken into account. Currently, the landholder duty provisions deem parties to be “related persons” in a variety of ways, including where the parties’ acquisitions in a landholder form or arise from substantially one transaction or one series of transactions. The Commissioner then has a discretion not to treat such acquisitions as being made by related persons.
The Bill proposes to remove this discretion. Although the Bill proposes to include specific provisions that parties that make acquisitions that result from a public float will not be “related persons”, there are a number of circumstances that will not be covered by this carve out. As a result of these proposed changes, parties that are otherwise unrelated and make acquisitions for their own purposes, may find their transactions aggregated and subject to duty in circumstances that would previously have satisfied the Commissioner that the discretion should be exercised.
New limitations on corporate restructures
When the Duties Act was introduced in 2008, the corporate reconstruction exemption rules abandoned any requirement for group companies to remain associated for a minimum period following an intra-group transfer of assets.
Coupled with this is the fact that Western Australia is one of the few Australian states and territories that still imposes duty on a direct transfer of business assets (e.g. goodwill). By contrast, an indirect transfer of such assets (e.g. through selling the shares in a company that holds non-land business assets) does not attract any duty.
One consequence of this has been that taxpayers looking to dispose of non-land business assets could package those assets in a company, claim a corporate reconstruction exemption, and then dispose of the company (holding only non-land assets) without triggering any duty.
The Bill proposes changes under which an exemption for an intra-group transfer of dutiable property will be automatically revoked if, within 3 years of the transfer, the transferee of the dutiable property ceases to be more than 50% commonly owned and controlled as the transferor. The object of these amendments is to prevent parties from packaging business assets into a company structure so that a third party can acquire them without paying duty.
Some of the key points to note about the updated provisions are:
- unlike other jurisdictions that impose a post association requirement in the criteria for corporate reconstruction exemptions, under the Bill, the exemption will only be revoked:
- if the transferee leaves the group (rather than any group member that is party to the transaction); and
- if the transferee ceases to be 50% (rather than 90%) owned and controlled; and
- a transaction will only qualify for relief if the consideration for the transaction is provided from a group member or is provided by way of a loan.
In addition to the above changes, there are a wide variety of other changes that are proposed by the Bill, including in relation to partnerships, incorporated associations and certain nominal duty transactions.
Parties considering transactions involving Western Australian assets should seek advice on the potential impact of the Bill’s proposed amendments. We can assist in this process.