State Taxation Acts (General Amendment) Bill

State Taxation Acts (General Amendment) Bill

Introduction Print

EXPLANATORY MEMORANDUM

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BILL LA INTRODUCTION 24/5/2005

General

The Bill amends the Business Franchise (Petroleum Products) Act 1979 to allow payments from the Better Roads Victoria Trust Account for road safety initiatives and traffic and transport integration programs.

The Bill amends the Debits Tax Act 1990 to discontinue the liability to pay debits tax that arises from a certain date.

The Duties Act 2000 is amended to introduce a new Part 4A into Chapter 2. This Part deals with transactions treated as sub-sales of land and sets out the position in respect of—

·  transfers involving additional consideration;

·  transfers resulting from land developments;

·  transfers resulting from options.

The Bill also repeals a number of minor exemptions in that Act, i.e. transfers of property resulting from a reduction in capital, on a company wind-up or on a foreclosure of mortgage and provides transitional arrangements where necessary.

Additionally, the Bill amends that Act to—

·  extend the temporary suspension of the first home owner exemption or concession;

·  clarify certain terms in the land-rich provisions and insert a new provision to allow for the registration of declared wholesale unit trust schemes;

·  amend the corporate reconstruction exemption to extend the exemption to eligible transactions arising from corporate consolidations.

The Bill amends the First Home Owner Grant Act 2000. It extends the period for which an eligible transaction will attract the $5000 additional grant. The amount of the additional grant will reduce to $3000 from 1January 2006 and will cease on 1 July 2007.

There are a number of amendments to the Land Tax Act 1958. The Bill introduces new exemptions from land tax for land used for residential care facilities, supported residential services, rooming houses and caravan parks. There are specific requirements for each of these exemptions to be applicable and in each case special land tax will apply if the use of the land changes. Each of these amendments will apply retrospectively, from 1January 2005 for caravan parks and from 1 January 2004 for each of the others.

The Bill also amends the principal place of residence exemption of the Land Tax Act to clarify the calculation of refunds in particular circumstances and adopts for that Act, where relevant, the administrative provisions of the Taxation Administration Act 1997 that deal with the power to require information.

There are also significant amendments to the Land Tax Act raising the taxfree threshold, reducing actual rates of land tax (including a rebate for the2005 land tax year) and capping certain potential tax increases for the 2006 land tax year.

The Bill amends the Pay-roll Tax Act 1971, specifying that wages paid or payable by school councils from 1 July 2004 are exempt from pay-roll tax.

The Taxation Administration Act 1997 is amended to clarify the instances where penalty tax may be reduced following a voluntary disclosure of noncompliance by a taxpayer. The Bill also extends the list of authorised recipients under the secrecy provisions by adding the Country Fire Authority and the Metropolitan Fire and Emergency Services Board. The manner in which the interest rate and valuation of foreign currency are determined is amended to reflect current practice. An equivalent amendment to the manner in which the interest rate is determined is made to the Taxation (Interest on Overpayments) Act 1986.

Clause Notes

PART 1—PRELIMINARY

Part 1 of the Bill outlines the purposes of the Bill and contains the commencement provisions.

Clause 1 outlines the purposes of the Bill.

Clause 2 Sub-clause (1) provides that the proposed Act comes into operation on the day after the day on which it receives the Royal Assent, except—

·  sub-clause (2) provides that sections 24(3), 26, 28 and29 (other than sub-section (2)) are deemed to have come into operation on 1 January 2004. This reflects the Government's intention that these land tax exemptions are to apply from that date (as will the provision for special land tax upon change of use);

·  sub-clause (3) provides that section 13(1) is deemed to have come into operation on 13 May 2004. This is because this amendment clarifies the intent of the original provision from when that provision was first introduced;

·  sub-clause (4) provides that Part 7 (except section 33) is deemed to have come into operation on 1 July 2004. This reflects the Government's intention that this exemption from pay-roll tax will have effect from the start of the 2004-05 financial year;

·  sub-clause (5) provides that sections 24(2), 27, 29(2), 30 and 33 are deemed to have come into operation on 1January 2005. This reflects the Government's intention that the land tax exemption for caravan parks and the refund amendment to the principal place of residence exemption will have effect for the 2005 land tax year;

·  sub-clause (6) provides that sections 19, 20 and 21 are deemed to have come into operation on 31 March 2005. This is because these provisions (the corporate consolidation duty exemptions) are to take effect from the date of public announcement;

·  sub-clause (7) provides that Parts 3 and 5 and section 12 are deemed to have come into operation on 1 July 2005. This is to reflect the decision to discontinue debits tax liability from that date and to extend the additional first home owner grant (and parallel temporary suspension of the duties exemption) from their previous end dates of 30 June 2005. Part 2, which broadens the purposes of the Better Roads Victoria Trust Account, also commences on 1 July 2005.

PART 2—BUSINESS FRANCHISE (PETROLEUM PRODUCTS) ACT 1979

Part 2 of the Bill contains an amendment to the Business Franchise (Petroleum Products) Act 1979.

Clause 3 extends the payment of amounts from the Better Roads Victoria Trust Account to include payments for "road safety initiatives and traffic and transport integration programs".

PART 3—DEBITS TAX ACT 1990

Part 3 of the Bill contains amendments to the Debits Tax Act 1990.

Clause 4 inserts a new provision into Part 8, which discontinues the liability to pay debits tax on a taxable or eligible debit if such debit is made on or after 1 July 2005.

Clause 5 inserts new sub-sections in sections 28 and 55, specifying that returns need not be lodged relating to any month after June 2005. This is a practical necessity following on from the discontinuation of the liability to debits tax.

PART 4—DUTIES ACT 2000

Part 4 of the Bill makes a range of amendments to the Duties Act 2000.

Clause 6 amends the definition in section 3(1) of the Act of "wholesale unit trust scheme" by adding "declared wholesale unit trust scheme". This definition is relevant to Chapter 3 of the Act.

Clause 7 repeals sections 10(1)(f) and 21(2) as a consequence of the new Part 4A inserted by clause 10.

Clause 8 amends section 22B(6) by adding a reference to section 10(1)(d)(v) which was always intended to be included but had been overlooked.

Clause 9 repeals section 31 as a consequence of the insertion of new Part4A inserted by clause 10.

Clause 10 inserts a new Part 4A into Chapter 2 replacing section 31. NewPart 4A sets out the situations in which transactions between parties between the date of contract and ultimate settlement will attract additional duty because these transactions constitute a subsale of the land.

The legislation brings to duty transactions, evidenced through nomination, assignment, novation or otherwise of a third party to be the transferee of the land, that are the result of a commercial arrangement, the nature of which is to effect a sub-sale of the land by the person with whom the vendor has a contract or option arrangement. Transactions involving relatives are specifically excluded.

The structure of the sub-sales provisions is—

·  Division 1—is the introduction to the Part and provides common definitions.

·  Division 2—deals with transactions that involve additional consideration, being the principle indicator of a sub-sale.

·  Division 3—deals with transactions that involve land development prior to the substitution of the purchaser, which is a further indicator that a commercial sale has occurred.

·  Division 4—deals with transactions utilising options, which have been used to avoid duty on sub-sales.

·  Division 5—contains provisions that apply generally to all types of sub-sales.

PART 4A—TRANSACTIONS TREATED AS SUBSALES OF LAND

Division 1—Introduction

This Division defines 4 commonly used terms.

32A. Definitions

This section contains the following definitions—

"associate" which is defined to include the wider concept of persons acting in concert, which addresses persons operating in a commercial or co-operative sense;

"consideration" which is defined to mean the amount of monetary consideration or the value of non-monetary consideration;

"land development agreement" which is defined to include any manner of development of land including anything that demonstrates a change or proposed change or anything that would lead to the enhancement of the value of the land;

"option" which is defined to include both put and call options in their generally-accepted commercial sense and any agreement that could be construed as representing an option in relation to gaining an interest or right in respect of land.

Division 2—Transfers Involving Additional Consideration

This Division establishes the type of transfers involving additional consideration that are considered to be sub-sales and which are, therefore, targeted by Part 4A.

32B. Application of Division

Sub-section (1) provides that this Division applies to transfers of land or land and goods where the owner, having contracted to sell or transfer the property to one person, transfers the property to another person who has obtained rights to the property from the purchaser under the contract. The Division only applies where any substituted purchaser has paid more than the person from whom the right was received was required to pay to complete the transaction.

Sub-sections (2) and (3) state that there may be a range of ways in which a subsequent purchaser obtains a transfer right but each of these ways is called a "subsequent transaction".

Sub-section (4) defines "additional consideration" and "excluded costs"—

"additional consideration" for a transfer right means any consideration other than reimbursement of excluded costs, given or agreed to be given that exceeds the amount which is payable by the person from whom the transfer right in relation to the property was obtained;

"excluded costs" mean those costs which are normally and reasonably incurred as part of the acquisition of dutiable property by a person in a land sale contract that has not yet settled.

32C. How duty is charged on transfer

Sub-section (1) specifies that duty on a transfer under this Division is charged separately and distinctly on both the dutiable value of the sale contract as if it had been completed, and the dutiable value of each subsequent transaction.

Sub-section (2) notes that duty is charged at the rates set out in Part 3.

32D. Dutiable value of transactions

Sub-section (1) states that the dutiable value of a sale contract referred to in section 32C(1)(a) is the greater of—

·  the consideration given or agreed to be given under the sale contract; and

·  the amount for which the property might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date on which the sale contract was entered into.

Sub-section (2) states that, in respect of any subsequent transaction, the dutiable value is the greater of—

·  the consideration payable by the subsequent purchaser to obtain the transfer right, excluding certain amounts such as legal costs and GST; and

·  the amount for which the property might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date on which the subsequent transaction was entered into.

32E. When does the liability to duty arise?

This section stipulates that a liability for duty arises when a transfer occurs, being when the full settlement of the contract of sale occurs.

32F. Who is liable to pay the duty?

Sub-section (1) imposes a liability to pay duty on—

·  the first purchaser, in the case of the original sale contact; and

·  each subsequent purchaser who obtains a transfer right under a relevant subsequent transaction.

Sub-section (2) provides, to a transferee who pays duty payable by another person, the right of recovery of that duty as a debt due to the transferee.

32G. Exemptions and Concessions

These provisions import the relevant exemptions applicable to transactions in the remainder of Chapter 2 as if each of the transactions described resulted in a transfer of the property.

32H. No double duty

This section ensures that duty cannot be charged under more than one of the Divisions contained in Part 4A.

Division 3—Transfers Involving Land Development

This Division establishes the type of transfers involving land development that are considered to be sub-sales and which are, therefore, targeted by Part 4A.

32I. Application of Division

Sub-section (1) provides that this Division applies to transfers of land or land and goods where the owner, having contracted to sell or transfer the property to one person, transfers the property to another person who has obtained rights to the property from the purchaser under the contract. The Division only applies where land development occurs between the date of the contract and the date of settlement/transfer.

Sub-sections (2) and (3) state that there may be a range of ways in which a subsequent purchaser obtains a transfer right but each of these ways is called a "subsequent transaction".

32J. How duty is charged on transfer

Sub-section (1) specifies that duty on a transfer under this Division is charged separately and distinctly on both the dutiable value of the sale contract as if it had been completed by the first purchaser, and the dutiable value of each subsequent transaction.

Sub-section (2) notes that duty is charged at the rates set out in Part 3.

Sub-section (3) provides that if the land development was included in the conditions for the original sale or occurred after a subsequent transaction, the acquisition of the transfer right would not represent a sub-sale by the first purchaser under this Division.