NSW indirect tax – no payroll tax on partnership profit distributions, but a raft of reforms passed by Parliament

The Revenue, Fines and Other Legislation Amendment Bill 2023 (Bill) passed both Houses of NSW Parliament on 24 August 2023.

With one amendment by the Government in relation to a 12-month period of abeyance in relation to any payroll tax audits by the Chief Commissioner of State Revenue regarding a general practitioner’s, or an entity with which the general practitioner has a practice arrangement, compliance with the Payroll Tax Act 2007 (NSW). As of the date of this Tax Insight, the Bill is awaiting assent. 

Large Australian consultancy firms will be breathing a collective sigh of relief after a proposal by the Greens to redefine ‘wages’ to include profit distributions by accounting partnerships constituted by more than 100 Partners was not proceeded with.

Some of the changes to the Duties Act 1997 (NSW), Land Tax Management Act 1956 (NSW), Taxation Administration Act 1996 (NSW), Government Sector Finance Act 2018 (NSW), and Payroll Tax Act 2007 (NSW) are as follows: 

CHANGES TO DUTIES

Section 8A - Vesting of land in New South Wales by statute law

New sub-sections 8A(6) and (7) – A division of a corporation

Vesting of dutiable property in each new corporation by statute law of the land in NSW is chargeable with duty where a single corporation is split into two or more new corporations.

Section 12 When does a liability for duty arise?

Old sub-section 12(4) was deleted and a new sub-section 12(4) was inserted. 

There were instances where an instrument is not digitally signed and is uploaded without a digital signature. 

New sub-section 12(4) sets out the liability date for PEXA Transfers of dutiable property, being the date the instrument is first digitally signed by the subscriber or when the Chief Commissioner first receives information relating to the instrument. 

With respect to Contracts for the Sale of Land, the Contract is already dated at exchange.  Section 12(4) relates to PEXA Transfers of Land. 

(4) An electronic registry instrument is taken to be first executed—

      (a) if the instrument is digitally signed by a subscriber within the meaning of the Electronic Conveyancing National Law (NSW)—on the date the instrument is first digitally signed by the subscriber, or

      (b) otherwise—when the Chief Commissioner first receives information relating to the instrument.

Section 25 Aggregation of dutiable transactions 

Section 25 is broadened with the removal of the 12-month aggregation condition under section 25(1)(a). 

Only three (3) conditions will now need to be satisfied for dutiable transactions to be aggregated: 

1. the transferor is the same or the transferors are associated persons, and          
2. the transferee is the same or the transferees are associated persons, and          
3. the dutiable transactions together form, evidence, give effect to or arise from what is, substantially, one arrangement relating to all of the items or parts of, or interests in, the dutiable property.

Section 31 Effect of alteration in purchase price

New sub-section 31(3): The amount of duty assessed or reassessed in accordance with this section must be calculated at the general rate of duty under section 32 when the agreement for the sale or transfer was first executed.

Section 54A Transfers in relation to managed investment schemes

Old sub-sections 54A(7) and (8) were deleted and replaced.

New sub-section 54A(7) the duty concession applies to transfers consequent on the deregistration of managed investment schemes. 

54A(7) Duty of $50 is chargeable for a transfer of dutiable property arising from the deregistration of a managed investment scheme from the custodian of a trustee that was, immediately before the deregistration, the responsible entity of the scheme, to the trustee.

Duties Revenue Ruling DUT 049 will need to be updated with this change. 

New sub-section 54A(8) – a wholly owned sub-trust will be satisfied if the sub-trust is indirectly owned by the Trustee/Responsible entity of the same managed investment scheme: 

Example: Managed Investment Scheme A owns 100% of the units in Sub-trust B. Managed Investment Scheme A owns 80% of the units in Sub-trust C. Sub-trust B owns the remaining 20% of units in Sub-trust C. Sub-trust C is a wholly owned sub-trust of Managed Investment Scheme A.

Section 55 Property vested in an apparent purchaser

New sub-section 55(1C) – extends the apparent purchaser and real purchaser concessional duty to also apply to a legal personal representative of an apparent purchaser or real purchaser.

For example, if a Trustee of a Bare Trust is the legal personal representative of the apparent purchaser, section 55(1)(a) would apply to the Bare Trust Deed, or if the Transferee under a Transfer of Land is the legal personal representative of the real purchaser, section 55(1)(b) would apply to the Transfer of Land, so long as the other conditions under section 55 are satisfied.

New Sub-section 58(2A) – Broadens section 58 to also capture electronic signing of trust deeds in NSW. 

When is a trust deed (established over unidentified property or non-dutiable property) under section 58 electronically signed: 

An instrument that is electronically signed under the Electronic Transactions Act 2000 is taken to have been executed in New South Wales if—

(a) for a trustee of the trust that is a corporation—the trustee’s registered office or principal place of business is in New South Wales, or               
(b) for a trustee of the trust that has an ABN—the trustee’s registered business address is in New South Wales, or               
(c)otherwise—the principal place of residence of the trustee of the trust is in New South Wales.

New sub-section 58(7) 

In this section—ABN means the ABN (Australian Business Number) within the meaning of the A New Tax System (Australian Business Number) Act 1999 of the Commonwealth.

Section 61 Transfers of property in connection with persons changing superannuation funds

Correction to the wording in section 61(1)(b), the following was inserted instead: “being or becoming a member of, or otherwise being or becoming”.

New sub-sections 61(1B) and (1C) – for persons transferring or consolidating the person’s superannuation 

Clarifies that the fixed duty of $500 applies only if the dutiable property transferred is valued at less than the value of the benefit to which the person transferring the dutiable property is entitled to. Also be mindful of what consideration can be given for the dutiable property transferred.

(1B) This section does not apply to a relevant transfer if—                

(a) the dutiable property transferred, or agreed to be transferred, has a value that is more than the value of the benefits to which the person is                        
entitled—  
(i) at the time of the transfer or agreement to transfer, and  
(ii) in respect of the superannuation fund for which the person ceases  
to be entitled to benefits, or  
(b) consideration is given for dutiable property transferred or agreed to be transferred except as provided in subsection (1A)(d) and (e). 

(1C) For subsection (1B)(b), an undertaking by the trustee of a superannuation fund to provide rights and benefits to a person in accordance with the rules of the superannuation fund is not consideration.

New section 280A Registered native title body corporates

Duty is not chargeable on a transfer of property to a registered native title body corporate if the transfer is in accordance with an indigenous land use agreement.

indigenous land use agreement has the same meaning as in the Native Title Act 1993 of the Commonwealth.                        
registered native title body corporate has the same meaning as in the Native Title Act 1993 of the Commonwealth.

Section 305 Valuation of property was deleted entirely and a new section 17A was inserted into the Taxation Administration Act 1996 (NSW) (see below).

CHANGES TO LAND TAX

Land used as a site for a school is exempt from land tax even if the land is not owned by the school:

New sub-section section 10(1)(s):

land used solely as a site for a school registered under the Education Act 1990,

CHANGES TO TAXATION ADMINISTRATION 

New section 17A – Valuation of property

In addition to the old section 305 of the Duties Act, the Chief Commissioner may recover from the taxpayer the cost of obtaining a valuation of property, if—

(a) the value of the property in the valuation obtained by the Chief Commissioner differs from the value of the property provided by the taxpayer by at least 10%, or                        
(b) the taxpayer fails to comply with a written notice given to the taxpayer under subsection (1)(a) within 60 days after the notice is issued

New section 85AA – Disclosure of confidential tax information

Deletion of sub-section 90(1).  New sub-section 90(1) Objections lodged out of time

Restriction on when an objection can be lodged out of time to 5 years after the initial assessment was served:

The Chief Commissioner may permit a person to lodge an objection after the 60-day period referred to in section 89, but no later than 5 years after—                         
(a) the date of service of the notice of the initial assessment, or                         
(b) the date on which the decision referred to in section 86(1)(b) is served on the taxpayer.

New section 58A – Tax Evasion 

A person must not, by a deliberate act or omission, evade or attempt to evade tax. Maximum penalty—500 penalty units or imprisonment for 2 years, or both

New section 61A – Exceptions for general practitioners during relevant period        

A new section 61 will be inserted into the Taxation Administration Act 1996 (NSW), prohibiting any audit activity by the Chief Commissioner of State Revenue in respect of a general practitioner’s[1] compliance with the Payroll Tax Act 2007 (NSW), or that of an entity with whom a general practitioner has a practice arrangement (to the extent amounts paid by the entity relate to the general practitioner), for 12 months from the day on which the Revenue, Fines and Other Legislation Amendment Act 2023 (NSW) commences.

Additional provision is made for the non-imposition of penalty tax in the event that a tax default by a general practitioner occurs before or during the relevant period, as well as no interest being payable in relation to a day that is within the relevant period. It is expressly stated, however, that such provision does not entitle a person to a refund of interest or penalty tax paid before the relevant period.

New sub-section 106F(3A) - What is a tax avoidance scheme? 

A scheme that results in, or may reasonably result in, the constitution of a group under the Payroll Tax Act 2007, section 74A is taken to be a tax avoidance scheme. Under the Payroll Tax Act 2007, section 74(4), the Chief Commissioner may determine that an entity and a former entity that are influenced by a third party do not constitute a group if the Chief Commissioner is satisfied the influence of the third party on the entity and a former entity is not, or was not, intended to avoid tax.

CHANGES TO GOVERNMENT SECTOR FINANCE 

Enable the Chief Commissioner to recover certain act of grace payments if the person who received the payment does not comply with the terms and conditions of the payment. The amendments also apply certain provisions of the Taxation Administration Act 1996 relating to record-keeping, offences and investigations to persons to whom certain act of grace payments are made.

New section 5.7(3A):

(3A) If a term or condition of a nominated act of grace payment is contravened by the recipient of the payment, the payment may be recovered from the recipient by the Chief Commissioner of State Revenue under the Taxation Administration Act 1996 as if the payment is an amount of unpaid tax under that Act. 

For more information

For further information on how the new provisions may impact you, please contact Mira Brewster or Sam Mohammad.

[1] The term ‘general practitioner’ is relevantly defined to mean a medical practitioner who, under the Health Practitioner Regulation National Law, holds registration as a general practitioner.