These notes are derived from Peter Collins and Tim Kyle, ‘Introduction to Duties Act 1997’ (Practice Paper No SR201, College of Law, June 2015) [201.40]–[201.100], [201.145]–[201.175]

Dutiable property

  • Duties Act 1997 (NSW) s 11 defines ‘dutiable property’:
    • Land in NSW.
    • Transferable floor space (heritage floor space).
    • A land use entitlement.
    • Shares in a NSW company or corporation incorporated outside Australia that are kept on the Australian register kept in NSW.
    • Units in a trust scheme registered on a register kept in NSW, or in respect of which the manager or trustee is a NSW company or natural person resident in NSW.
    • A business asset being:
      • Goodwill of a business if it supplied goods or services in NSW to a NSW customer during the previous 12 months.
      • Intellectual property used or exploited in NSW during the previous 12 months, so long as it is the subject of an arrangement that includes a dutiable transaction over the goodwill.
      • A statutory licence or permission under a Commonwealth law if the rights have been exercised during the previous 12 months in respect of NSW, or an area that includes NSW, or a part of NSW.
    • A statutory licence or permission under a NSW law.
    • A gaming machine entitlement.
    • A partnership interest in a partnership that has property that is dutiable property.
    • Goods in NSW that are the subject of an arrangement that includes a dutiable transaction of any dutiable property (other than intellectual property) referred to elsewhere, but not including:
      • Stock-in-trade, materials held for use in manufacture, and goods under manufacture.
      • Goods held or used in connection with land used for primary production.
      • Livestock.
      • Registered motor vehicles.
      • Ships and vessels.
    • An option to purchase land in NSW.
    • An interest in any dutiable property except to the extent that
      • it arises as a consequence of the ownership of a unit in a unit truste scheme and is not a land use entitlement,
      • it is, or is attributable to, an option over dutiable property, or
      • it is an interest in a marketable security, being an interest that is traded on the Sydney Futures Exchange.
  • Certain marketable securities are not dutiable property:
    • Shares, or units in a unit trust scheme, that are quoted on the ASX or a recognised stock exchange.
    • An interest in shares, or an interest in units of a trust scheme, if either the shares or interests are quoted on the ASX or a recognised stock exchange.

Land in New South Wales

  • Land is dutiable under s 11(1)(a); land includes a stratum.
  • Land includes messuages, tenements and hereditaments, corporeal and incorporeal, of any tenure or description and whatever may the estate or interest therein: Interpretation Act 1987 (NSW) s 21(1).
  • Land includes tenements and hereditaments, corporeal and incorporeal, and every estate and interest therein whether vested or contingent, freehold or leasehold, and whether at law or in equity: Conveyancing Act 1919 (NSW) s 7.
  • Tenements are the subject of a tenure and include corporeal and incorporeal hereditaments.
  • Hereditaments is real property which on intestacy may devolve on an heir rather than next of kin.
    • Archaic given that property now passes under statute rather than to an heir.
  • Corporeal hereditaments are visible, tangible objects such as land and houses.
  • Incorporeal hereditaments are intangibles such as tithes, easements and profits à prendre.
    • Tithes are not part of the language of NSW land law.
  • Interests in land are also dutiable, including an estate or proprietary right: s 11(1), Dictionary.

Transferable floor space

  • Transferable floor space (heritage floor space) is dutiable under s 11(1)(b).
  • Transferable floor space can also be a partnership interest as a land-related asset: s 29(4).

Land use entitlements

  • Land use entitlements are dutiable under s 11(1)(c).
  • The Duty Act Dictionary defines it as ‘an entitlement to occupy land within NSW conferred through an ownership of shares in a company or an ownership of units in a unit trust scheme or a combination of a shareholding or ownership of units together with a lease or licence.’

Shares

  • Shares and interests in shares quoted on the ASX or a recognised stock exchange are not dutiable property.
  • Unquoted shares are subject to duty under s 11(1)(d), but this will be abolished from 1 July 2016.
  • Shares include rights to shares.
  • A NSW company is a company incorporated under the Corporations Act 2001 (Cth) and registered in NSW, or any body corporate incorporated under a NSW Act.

Units in a unit trust scheme

  • Units or interests in units quoted on the ASX or a recognised stock exchange are not dutiable property.
  • Unquoted units are subject to duty under s 11(1)(e), but this will be abolished from 1 July 2016.

Business assets

  • Business assets are dutiable property under s 11(1)(g).
  • Duty on business assets will be abolished from 1 July 2016.

Goodwill

  • Goodwill of a business is a business asset and is dutiable if the business has supplied goods or services in NSW to a customer of the business during the previous 12 months: s 11(1)(g)(i).
  • There have been a considerable number of cases considering:
    • Whether goodwill is property.
    • If it is property, whether it can exist independently and be dealt with independently of other assets.
    • Where goodwill is located.
  • Uncertainty remains as to the nature of goodwill; there is no guidance as to what the NSWSRO considers to be goodwill.
  • Duty is payable on the higher of the consideration or the unencumbered value of dutiable property: s 22.
    • The unencumbered value of the goodwill of a business is taken to include the value of any restraint of trade arrangement entered into by the vendor in order to protect the value of the goodwill: s 23(2).

Intellectual property

  • Intellectual property is a business asset.
  • Intellectual property refers to a business name, trading name, domain name, trade mark, industrial design, patent, registered design or copyright; a right to use or exploit these; or a thing, system or process (including adaptations) that is the subject of a patent, registered design or copyright.
  • Imposition of duty on intellectual property is restricted to instances where it is the subject of a dutiable transaction that includes the goodwill of a business.

Statutory licences under Commonwealth law

  • A statutory licence or permission under a Commonwealth law is a dutiable business asset if exercised in respect of NSW during the previous 12 months: s 11(1)(g)(iii).
  • Duty on statutory licences and permissions will be abolished from 1 July 2016.

Statutory licences under NSW law

  • A statutory licence or permission under NSW law is dutiable property: s 11(1)(h).
  • Duty on statutory licences is to be abolished on 1 July 2016.

Poker machine entitlements

  • Poker machine entitlements within the meaning of the Gaming Machines Act are dutiable property under s 11(1)(h1).
  • NSWOSR also collects the gaming machine tax paid on the profits from gaming machines.
  • Duty on gaming machine entitlements is to be abolished on 1 July 2016.

Partnership interests

  • A partnership interest is an interest in a partnership that has a partnership property.
  • The partnership property must be dutiable property under s 11 for the partnership interest to be liable to duty under s 11(1)(i).
  • Duty is not assessed by reference to whether or not the partnership carries on business in NSW, but whether it holds any dutiable property.
  • A transfer of a partnership interest occurs when a change in partnership arrangements occurs (retirement or admission of a partner).: s 9A.
    • New partnerships are formed when this happens, unless the retirement and a winding up happen at the same time.

Goods in NSW

  • Goods in NSW are liable to duty if they are part of an arrangement that includes a dutiable transaction over any dutiable property other than intellectual property: s 11(1)(j).
  • Various goods are excluded, including stock-in-trade and goods under manufacture: s 11(1)(j).
  • Duty is not assessed if the goods alone are transferred.
  • Duty is not assessed if only goods and intellectual property are transferred.
  • Transfer of goods together with transfer of dutiable property will result in a liability on both.

Stock-in-trade

  • Stock-in-trade is not defined in the Duties Act.
  • Narrow meaning refers to goods held by a trader for sale in the ordinary course of trade: Federal Commissioner of Taxation v Suttons Motors (Chullora) Wholesale Pty Ltd (1985) 157 CLR 277, 281–2.
  • Wider view refers to manufactured goods held for sale and stock of raw materials, components and partly-manufactured goods.
  • NSWOSR can disregard the value of goods when assessing duty on transactions concerning goods and other property if the dutiable value of the other property does not exceed 10% of the value of all the dutiable property.
    • The value is not to be disregarded where the goods are used in connection with a business in respect of which the goodwill of the business ir, or is part of, the dutiable property.

Materials held for use in manufacture/goods under manufacture

  • This exclusion goes some way to ensuring a limited meaning is not given to stock-in-trade.
  • The concept of ‘manufacture’ raises its own difficulties in establishing whether a particular process involves manufacture.
    • There is uncertainty as to whether recycling, modification and assembly involve manufacture.

Options to purchase land in NSW

  • Transfers of options to purchase land in NSW will be dutiable under s 11(1)(k).
  • The Act does not seek to assess duty on a conditional agreement to transfer property unless that property is an interest in land.
  • A transfer occurs when, for valuable consideration:
    • Another person is nominated to exercise the option.
    • Another person is nominated as purchaser or transferre of the land the subject of the option.
    • The option holder agrees to a novation of the option or otherwise relinquishes rights under the option so that another person obtains a right to exercise the option or to purchase the land.

Dutiable value

  • The dutiable value of dutiable property is the greater of the consideration and the unencumbered value of the property: s 21(1).

Transfer of an interest under ‘uncompleted agreement’

  • If a purchaser transfers its rights under an agreement for the purchase of land to a third party, this is a transfer of an interest in land and is dutiable property: s 11(1)(a).
  • The consideration for the transfer of the interest under such an uncompleted agreement includes the balance of the amount or value of the consideration that would be required from the transferre under the agreement in order to complete it in accordance with its terms: s 22(2).

Improvements to land

  • Where a transferee has made improvements to land before the land is transferred to it, duty is charged as if they had not been made: s 23(3).
  • If the vendor agrees to make improvements before the time of settlement duty will be assessed on the value of the land as improved.
    • The vendor has agreed to transfer improved land.
    • The argument that the vendor made a separate contractual commitment is not accepted.

Interests, agreements and arrangements that reduce dutiable value

  • An interest, agreement or arrangement (other than an encumbrance) which affects the dutiable value of dutiable property that is subject to a dutiable transaction is to be disregarded when determining the dutiable value, unless it was not granted or made with the purpose of reducing the duty payable: s 24.
  • The Chief Commissioner takes into account:
    • The duration of the interest, agreement or arrangement before the dutiable transaction.
    • Whether the interest, agreement or arrangement has been granted to or made with an associated person.
    • Whether there is any commercial efficacy to the granting of the interest or the making of the agreement/arrangement other than to reduce duty.
    • Any other matters considered relevant.

Aggregation

  • It is possible to aggregate and treat several transactions as a single dutiable transaction: s 25.
  • Aggregation must be made if
    • the dutiable transactions occur within 12 months,
    • the transferor is the same or are associated persons (as defined in the Dictionary),
    • the transferees are the same or are associated persons, and
    • the dutiable transactions together form or evidence what is substantially one arrangement.
  • The effect is that two or more interdependent contracts will have their values aggregated and duty will be imposed on the higher amount.
    • This may mean a greater amount of duty is imposed.
  • Be familiar with Revenue Ruling No DUT 36, Aggregation of Dutiable Transactions (5 February 2009).
  • The value of goods can be disregarded by the Chief Commissioner if the value does not exceed 10% of the value of all dutiable property: s 26.
    • This does not apply where the goods are used in connection with a business in respect of which the goodwill of the business is, or is part of, the dutiable property: s 26(2).
      • These goods are not stock-in-trade; stock-in-trade is exempt.

Apportionment

  • If a transaction involves dutiable and non-dutiable property, duty is charged only on the dutiable property: s 27(1).
  • If a transaction involves property subject to different rates of duty, duty is charged as if separate dutiable transactions had occurred in relation to each type of dutiable property: s 27(2).
  • Under s 28(2) the dutiable value of a business asset to which that section applies is determined by the formula ‘DV = A × X/Y’, where:
    • DV is the dutiable value.
    • A is the greater of:
      • The unencumbered value of the business asset.
      • The consideration for the dutiable transaction as relates to the business asset.
    • X is the gross amount (in Australian dollars) of goods and services supplied in NSW by the business to customers of the business during the last three completed financial years preceding the dutiable transaction.
    • Y is the gross amount (in Australian dollars) of goods and services provided in and outside NSW by the business to customers of the business during the last three completed financial years preceding the dutiable transaction.
  • If apportionment cannot be made under s 28 the Chief Commissioner may use another basis to determine the dutiable value: s 28(4).
  • Duty on non-land business assets is to be abolished on 1 July.
  • The same formula is used for determining the dutiable value of a partnership interest, with different values:
    • A is the greater of:
      • The value of the partnership interest.
      • The consideration for the dutiable transaction as relates to the partnership interest.
    • X is the unencumbered value of all dutiable property of the partnership.
    • Y is the unencumbered value of all assets of the partnership.
  • The unencumbered value of dutiable property that is a business asset to which s 28 applies is the dutiable value of the business asset determined in accordance with s 28.