NSW budget to close ‘loopholes’ on duties, taxes

The NSW government has announced a raft of tax measures in its budget for 2023–34 handed down by NSW Treasurer Daniel Mookhey yesterday.

The new tax measures are set to secure almost $1 billion in revenue over the next four years through changes aimed at improving the fairness and integrity of the tax system.

One of the measures announced by the NSW government is to remove the corporate reconstruction and consolidation duty exemptions and replace them with a concessional duty rate.

BDO partner Fady Abi Abdallah said that under current laws, certain transfers of assets between members of a corporate group are exempt from duty in NSW.

“However, under the proposed regime, the exemption will be replaced by a concession duty which is charged at 10 per cent of the duty that would otherwise be payable on the transfer of those assets,” said Mr Abi Abdallah.

“So rather than saving 100 per cent, you are now only saving 90 per cent. Businesses will need to factor this into the cost of restructuring any corporate groups in the future.”

The new regime will bring NSW in line with Victoria, and is set to have an impact on a wide range of businesses, he said.

The NSW government also plans to close a loophole relating to the land tax exemption for a principal place of residence.

The new measure will require individuals who use and occupy land as a principal place of residence together to have a minimum 25 per cent stake in a property to claim the exemption, compared to the current rules which allow as little as a one per cent stake in the property.

Mr Abi Abdallah said investors holding multiple properties may be affected by the change.

“People will now need to revisit their existing ownership structure if they still wish to access the principal place of residence land tax exemption,” said Mr Abi Abdallah.

Another tax measure set to affect investors and landlords is the reduction in the threshold for the application of landholder duty with respect to private unit trusts.

Mr Abi Abdallah said the measure would most likely affect high-net wealth groups and other investors who use private unit trusts.

“Currently, where you transfer a significant interest – 50 per cent or more – in a landholder then that would trigger landholder duty which is effectively duty at land rates on the transfer of that ownership,” said Mr Abi Abdallah.

“What this measure does is reduce the definition of significant interest from 50 per cent to 20 per cent in respect of landholders that are private unit trusts.”

Mr Abdallah said investors will need to be careful with any future changes to unit holdings given that the hurdle of paying duty has been reduced from 50 per cent to 20 per cent.

“This could have a significant impact on property owners’ decisions or on the vehicle that they use to invest or hold land in NSW.”

The government also confirmed previously announced measures to support small businesses, including the small business energy rebate.

The government confirmed funding for previously announced rebates on energy bills for small businesses of up to $650.

The government said that over 300,000 businesses using less than 100 megawatt hours of electricity will be eligible for payments of up to $650.

It also restated its commitment to establish the NSW Business Bureau to improve small business engagement with government regulation, procurement, tendering and grants application processes, as well as engage with overseas markets.

Mr Abdallah also warned that taxpayers should pay heed to the state government’s additional investment in the compliance systems of Revenue NSW.

The government plans to provide $111.1 million over 4 years to boost Revenue NSW’s tax compliance activities. This is expected to increase revenue including $337 million from payroll tax and $225 million from transfer duties.

“Taxpayers need to be more vigilant to ensure they comply with their tax obligations given the additional investment increases the chances that they are going to be reviewed,” said Mr Abdallah.

Treasurer Daniel Mookhey said the measures aimed at closing tax loopholes to existing taxes and duties would “improve the fairness and integrity of the tax system”.

Mr Mookhey said the budget would bust the wages cap; begin toll reform; back first home buyers; build new and better public schools and hospitals; restore TAFE; fix social housing; repair rural and regional roads; help small businesses; and wrangle debt back under control.

“This budget sets forth how the Minns government will use the people’s resources to improve our people’s lives,” he said.

“This budget cuts waste, ends pork-barrelling, funds what works, and lowers debt for our children and our grandchildren.”