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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2010-07-21 Daily Xml
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STAMP DUTIES (PARTNERSHIP INTERESTS) AMENDMENT BILL

Introduction and First Reading

Received from the House of Assembly and read a first time.

Second Reading

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Industrial Relations, Minister Assisting the Premier in Public Sector Management) (22:50): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

The need for this Bill arises as a result of the decision of the Full Court of the Supreme Court of South Australia in Cyril Henschke Pty Ltd and Ors v Commissioner of State Taxation [2009] SASC 148 (the 'Henschke case').

The Full Court found that a partner's interest in partnership property is not an interest in the underlying assets held by the partnership, but is rather a chose in action entitling each partner to their share of the profits derived from the assets and the value of the partner's share of the assets upon dissolution.

Therefore, although upon retirement, a retiring partner may agree to sell his or her chose in action to the continuing partners, a retirement may also occur with no transfer. Rather, the retiring partner may simply leave the partnership taking cash representing the value of his or her proportionate share in the partnership property, without there being any transfer of the underlying partnership assets.

The decision of the Full Court has significant implications for stamp duty assessments as they relate to partnership interests. The judgment has left the way open for any partnership, wishing to effect a retirement of a partner or partners, to effect such a retirement by adopting the method used in this case, and consequently significantly reduce their stamp duty liability.

The potential revenue that may be lost is considered to be significant. Partnerships are a popular way to structure business enterprises in South Australia and therefore it is possible that partnerships may seek to effect any retirements of partners in the same way, and therefore avoid any stamp duty liability.

Leave to appeal the decision of the Full Court to the High Court of Australia has been obtained. However, the Government is nevertheless moving to amend the Act in order to ensure that the revenue base is protected regardless of the outcome in the High Court.

The Bill will ensure that partnership transactions continue to be taxed in the same manner that they were taxed prior to the Henschke case, thereby protecting the revenue. The provisions will apply both prospectively and retrospectively.

I commend this Bill to Honourable Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Amendment provisions

These clauses are formal.

Part 2—Amendment of Stamp Duties Act 1923

3—Insertion of section 71AB

This clause will insert a new section in the Act that specifically deals with the imposition of duty on transactions relating to interests in partnerships. In particular, the provision will make it clear that any transaction affecting an interest, including an interest consisting of a right to a proportion of the surplus property of a partnership if assets were realised and liabilities discharged, will be subject to duty. A transaction within the ambit of the section may be subject to duty even if there is no transfer of assets or change in the ownership of an equitable interest in the partnership.

The provision also reflects the current practice in relation to the assessment of duty, in that land is assessed according to its unencumbered value and all other assets are assessed on their net value.

Given the application of the new section to any instrument that may effect or evidence a relevant transaction, the provision makes it clear that if 1 instrument relating to a transaction is duly stamped, any other instrument relating to the same transaction will be exempt from duty to the extent necessary to avoid the imposition of double duty.

The section will operate both prospectively and retrospectively.

4—Amendment of section 71E—Transactions otherwise than by dutiable instrument

This clause makes a corresponding amendment to section 71E of the Act in relation to transactions within the ambit of proposed new section 71AB that are not effected by instrument.

5—Amendment of section 91—Interpretation

In a manner consistent with the proposed new section 71AB of the Act, it is intended to ensure that the Act applies so that an interest of a partner in a partnership will be considered to constitute a beneficial entitlement to a proportionate share in each and every asset of the partnership.

6—Amendment of section 95—General principle of liability to duty

Section 95 of the Act imposes duty with respect to transactions that relate to the acquisition of significant interests, or of increased interests, in land rich entities. Subsection (4) is to be amended to reflect the fact that these provisions extend to transactions that relate to changes in the interest of persons as partners in partnerships that hold relevant interests in land rich entities.

Schedule 1—Transitional provision

1—Transitional provision

This provision will allow the Commissioner of State Taxation to reassess duty on the basis of the amendments that are to be effected to the Act. However, the Commissioner will not be able to impose penalty duty on account of a reassessment under this clause and the measure will not affect a liability for duty with respect to the Deed that gave rise to the Supreme Court proceedings in the matter of Cyril Henschke Pty Ltd v Commissioner of State Taxation.

Debate adjourned on motion of Hon. D.W. Ridgway.

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