Tax Tip 139: Abolition of Duty on transfers of Units and Shares in NSW

Abolition of Duty on transfers of Units in Unit Trusts and Shares in Companies in NSW

This had been on the cards for years but kept getting delayed.


In NSW the transfer of shares in a company or the transfer of units in a unit trust will no longer incur stamp duty – but only if the company or trust is not a ‘landholder’. The stamp duty used to be 0.60%.

A landholder is a unit trust or company that has land holdings in NSW with a threshold value of $2,000,000 or more.

Abolition of NSW Marketable Security Duty | Office of State Revenue


The removal of duty allows for several strategies – with less cost.

 

The recent changes to tax law which take effect from 1 July can also allow a tax entity to restructure and provided the ultimate owner does not change a CGT event may be avoided. This has potential application for SOME property. The property transfer duty problem may remain.

 

The relevant legislation is s34 Duties Act 1997 NSW DUTIES ACT 1997 - SECT 34 Abolition of duty on transfers of marketable securities and commercial fishery shares

 

So what does this mean in NSW? Unit holder A sells units to Outsider X and pays no duty? Unit holder A transfers units to unitholder B and pays no duty? But in both cases, Unit holder A still has to pay CGT at 50%?

 

Stamp duty is usually paid by the transferee - the buyer or the recipient of a gift.
This is a dutiable transaction if land, but not if units of a trust or shares of a company (NSW law)- Unless the trust is classed as a land holder (holding more than $2mil of land).

Transfers of units or shares is still a CGT event though

 

Does anyone know does it works with a NSW fixed unit trust that holds land in Qld?

Does the $2million threshold only apply to NSW holdings or to any holdings?

The intention is to buy and develop a piece of land in Brisbane. Two purchasers are residents NSW putting up the deposit equally. However only one purchaser has serviceability and so as director/ trustee obtain the loan for a fixed unit trust. After settlement, the trust will transfer half the units to the other purchaser.

-will that transfer incur stamp duty?
-i presume no CGT if transfer is immediately after settlement
-does bank need to be notified? (Is this a breach of mortgage)
-does it make a difference to have a trust setup in Qld or NSW?

Too many spinning wheels. Much thanks for any tips on how to think about this!

 

Land in qld will mean qld duty laws apply. Duty on transfer of units probably.
Breach of loan agreement probably

There is not such thing as a NSW trust really.

 

But there is a way to set this up from the beginning so that no duty is payable. Seek legal advice. I can think of 2 off the top of my head

 

Thanks @Terry_w

Do you mean it doesn't really matter where a trust is formed; and that what counts is the location of the land? So see qld duty laws (and trust laws?)

 

I think I get it. Trusts are not state based. Stamp duty is state based.

 

The location of the land is what counts for duty purposes - for the transfer of land. But where transfering units the location unit register can also be important.
Seek legal advice

 

The QLD Duties Act has very strict indirect duties rules. Stronger than any other state.
A change of unitholder for any value of land is considered a transfer of land and dutiable.

Generally speaking a trust may have several issues which give illusion to a location :
- Trustee presence
- Trustee Registered Office
- Trustee Place of Incorporation (state)
- Trust Deed state of jurisdiction
However for the purposes of TRANSFER duties (unlike stamping a deed) the typical event is the tax is based on the state where the land is located. Only the trust land asset is subject to duty.

Issue of new units can trigger stamp duty in QLD (Part 8 Duties Act). Redemption can as well. Transfer of units is also dutiable. ....when there is real property. Changes to a disc trust can also trigger QLD duties. eg change the appointor.

Some states have a threshold to "land rich"duties rules etc. However in this case its not relevant as NSW Duties law does not apply to QLD property.

 

Trusts are generally governed by state jurisdiction which they specify in the deed. The relevant state trustee act would apply. If the deed doesn't specify then the Hague convention would apply and it may be the location of the trustee that governs which state laws apply.
But the duty laws of the state where the land is located will also apply as land is an immoveable asset.