Australian State Taxes Budget Update - 2019 - Stamp Duty, Payroll Tax And Land Tax Changes.
Legal News & Analysis - Asia Pacific - Australia - Tax
26 July, 2019
Following the release of the New South Wales and the South Australian State Budgets on 18 June 2019, all of the State Budgets have now been handed down. The following article outlines the material changes to State and Territory taxes including stamp duty, payroll tax and land tax.
What you need to know
The effects of this year's State and Territory Budgets are again mixed for taxpayers. Queensland and Victoria have been most active in increasing the rates and scope of their taxes, while other States like New South Wales and South Australia have made modest tax cuts.
Developers and other property-related businesses in Victoria should be aware of the widened scope of stamp duty, particularly in relation to fixtures and economic entitlements for land development arrangements. Corporate reconstruction stamp duty relief has also been pulled back from a full exemption to a 90% concession.
The burden on foreign investors purchasing and holding land continues to increase. In particular, Queensland has broadened the scope of its land tax surcharge to foreign companies and foreign trusts, which previously only applied to foreign individuals. The surcharge is not limited to residential land, but applies to all land. Tasmania has also significantly increased the foreign investor duty surcharge rate and, in line with other jurisdictions, has proposed introducing a foreign investor land tax surcharge.
New South Wales, Victoria and Queensland have scheduled increases to their payroll tax thresholds in the next few years meaning that more businesses will no longer be subject to payroll tax.
New South Wales
The stamp duty thresholds became indexed to the Consumer Price Index from 1 July 2019 with annual increases on each 1 July. New South Wales is the first and only State to implement inflation-based indexing of stamp duty thresholds.
The foreign investor surcharge exemption for permanent residents has been extended to holders of subclass 410 (retirement) and 405 (investor retirement) visas on stamp duty for principal places of residence from 1 July 2019.
A stamp duty concession is available for commercial and industrial land transactions in regional Victoria with effect from 1 July 2019. The concession is initially 10% and will increase annually to the maximum amount of 50% which will apply from 1 July 2023. Certain conditions must be met in order for the concession to apply, including that the land be used for commercial or industrial purposes for at least 12 months within two years after the purchaser becomes entitled to possession of the land.
The foreign purchaser additional duty (FPAD) increased from 7% to 8% from 1 July 2019, aligning Victoria with New South Wales as having the highest foreign purchaser duty rate.
New corporate reconstruction relief provisions have also been introduced for transactions between members of a corporate group from 1 July 2019 onwards. Under the new provisions, the previous full exemption that applied to qualifying transactions will be replaced with a concessional duty rate reflecting 10% of the duty otherwise payable.
One positive aspect of the new provisions is the removal of the duty clawback that previously applied where the members of the relevant corporate group for the reconstruction transaction left the group within three years of the eligible transaction occurring. The existing provisions combine to apply for arrangements entered into prior to 1 July 2019.
The State Taxation Acts Amendment Bill 2019 also contained a number of material amendments to the Victorian Duties Act 2000. An interest in a fixture is specifically treated as an independent form of property subject to duty even if dealt with separately from the land on which the fixtures are located. Additionally, the concept of "economic entitlement" has been broadened to impose transfer duty on the acquisition of direct "economic entitlements" in Victorian land with a value of $1 million or more under arrangements entered into on or after 19 June 2019.
The measures affect development arrangements where a developer constructs on land owned by someone else and receives a profit share from the development without acquiring any interest in the land (such as a participation in sale proceeds, rent or capital growth). Further, the provisions are broadly drafted and can potentially extend to many service and management arrangements. Where the provisions apply, the liable party is treated as having acquired a beneficial interest in the relevant land, with transfer duty charged accordingly.
The Victorian State Revenue Office has indicated that certain service fees will not be treated as economic entitlements. Examples given include real estate agent fees and fees paid to architects, project managers, planning consultants and private advisory firms.
While no significant changes to stamp duty rates or thresholds were announced in the Budget, the Revenue Laws Amendment Bill 2018 was assented to on 12 June 2019. This Bill contained a number of material amendments to extend the definition of "land" and re-write the landholder duty provisions, as well as introduce a three-year post-association period for corporate reconstruction relief (previously no post-association period applied).
From 1 January 2020, the foreign investor duty surcharge rate will increase:
- from 3% to 7% for residential land, meaning that this rate is now similar to that charged by other States; and
- from 0.5% to 1.5% for primary production land (Tasmania is the only State to charge surcharge duty on non-residential land).
Australian Capital Territory, Northern Territory, Queensland and South Australia
There were no changes to the stamp duty rates and thresholds.
New South Wales
As announced in the 2018 Budget, the payroll tax threshold will increase to $900,000 for 2019-20, $950,000 for 2020-21 and $1 million for 2021-22.
From 1 July 2019, the payroll tax lodgement process has been simplified, particularly for businesses with annual liabilities below $150,000 which can pay an estimated amount of monthly payroll tax rather than calculate their liability monthly. All businesses are also provided with an additional week to lodge their annual payroll tax reconciliation (ie the 2019 payroll tax reconciliation will be due on 28 July rather than 21 July).
The payroll tax threshold remains constant at $650,000 until 30 June 2021, before increasing to $675,000 from 1 July 2021 and then to $700,000 from 1 July 2022.
From 1 July 2020, the payroll tax rate for regional Victorian businesses will be progressively reduced over a three year period from the current 2.425% to 1.2125% by 2022/23. The requirement for an employer to be located in regional Victoria in order to benefit from the regional payroll tax rate was also removed with effect from 1 July 2019.
The exemption for wages paid in respect of employees taking maternity leave was extended to a broader category of parental leave with effect from 1 July 2019.
From 1 July 2019, the payroll tax rate increased from 4.75% to 4.95% for employers with total annual taxable wages above $6.5 million. The payroll tax threshold also increased from $1.1 million to $1.3 million.
The payroll tax rate has been reduced by 1% for regional Queensland businesses. Businesses are "regional" if they have a principal place of employment in regional Queensland and at least 85% of the business' payroll goes to regional employees. The discount is in place from 1 July 2019 to 30 June 2023.
The 50% payroll tax rebate on the wages of apprentices and trainees has been extended for a further two years until 30 June 2021. The Government has also proposed, but not yet legislated, a rebate of $20,000 for businesses that hire additional employees.
From 1 July 2019, the payroll tax exemption for new worker trainees earning up to $100,000 per annum was removed. Businesses may instead be able to receive assistance for hiring apprentices and trainees under the new "Employer Incentive Scheme".
Australian Capital Territory, Northern Territory, South Australia and Tasmania
There were no payroll tax changes announced in the Budget.
New South Wales
As for stamp duty, the surcharge land tax exemption for permanent residents has been extended to holders of subclass 410 (retirement) and 405 (investor retirement) visas for principal places of residence with effect from 1 July 2019.
From the 2020 land tax year, the absentee landowner surcharge will increase from 1.5% to 2.0%.
From 1 July 2019, land tax rates increased for companies, trustees and absentee landholders with aggregate landholdings over $5 million, as follows:
- from 2% to 2.25% for the portion between $5 million and $10 million; and
- from 2.5% to 2.75% for the portion above $10 million.
This follows from the increased land tax rates for landholdings over $10 million in the previous 2018/19 Budget.
The absentee landowner surcharge increased from 1.5% to 2.0% and extended to foreign companies and trustees of foreign trusts in addition to foreign individuals as was the case. This includes all commercial and primary production land (unless exempted). This means that both Victoria and Queensland now impose land tax surcharges on commercial land, with implications for landlords and tenants of commercial premises.
There were no land tax changes announced in the Budget.
A foreign investor land tax surcharge will apply to foreign ownership of residential and primary production land from 1 July 2020.
The current top marginal land tax rate of 3.7% which applies to land values exceeding $5 million will progressively decrease by 0.1% each year from 1 July 2020. The rate will reduce to 2.9% which will apply from 1 July 2027.
Australian Capital Territory
The Government has announced that it will propose legislative amendments so that newly built properties unable to be occupied by the purchaser will be exempt from land tax as was intended when legislative changes came into effect from 1 July 2018.
There is no land tax in the Northern Territory.
For further information, please contact:
Barbara Phair, Partner, Ashurst