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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2011-05-19 Daily Xml
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STATUTES AMENDMENT (LAND HOLDING ENTITIES AND TAX AVOIDANCE SCHEMES) BILL

Introduction and First Reading

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

Second Reading

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (18:03): 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.

This Bill replaces the land rich provisions contained in Part 4 of the Stamp Duties Act 1923 with landholder provisions as announced in the 2010 State Budget. The amendments will operate from 1 July 2011. Transitional provisions provide that agreements entered into prior to 1 July 2011 but completed on or after that date will be dealt with under the existing land rich provisions.

Both the land rich and landholder provisions are intended to ensure that conveyance duty is paid on the transfer of significant South Australian land assets when control of a company or unit trust changes. The introduction of a landholder model does not change conveyance duty arrangements for individuals or businesses buying land assets directly.

All jurisdictions have either land rich or landholder provisions in their stamp duty legislation. The provisions are intended to protect the conveyance duty revenue base from leakage caused by taxpayers purchasing land indirectly through companies and unit trust schemes, rather than directly.

A number of jurisdictions have either replaced land rich provisions with a landholder model or have announced their intention to do so. Landholder provisions currently operate in New South Wales, Western Australia, the Northern Territory and the Australian Capital Territory while Queensland has also announced its intention to move to a landholder model.

As opposed to land rich provisions landholder provisions treat all significant land transfers over the land threshold value—in South Australia's case $1 million—consistently and protect the conveyance duty base from being eroded through the manipulation of the land rich test.

Currently for land rich provisions of Part 4 to apply, a person or group of associates must acquire 50 per cent or more of the shares or units in a private company or unit trust where the private company or unit trust owns South Australian land valued at $1 million or more and where 60 per cent or more of the value of the total assets of the entity are land.

The asset test is currently 80 per cent or more for primary production entities.

The adoption of a landholder model removes the 60 per cent and 80 per cent tests so that the provisions will apply when a person or group of associates acquires 50 per cent or more of the shares or units in the private company or unit trust and the private company or unit trust owns land valued at $1 million or more in South Australia.

Land holder duty will also apply where 90 per cent or more of the shares or units of a listed 'landholder' company or trust are acquired. Duty for listed companies and trusts will be charged at a concessional rate of 10 per cent of the amount of duty otherwise payable.

Widely held unit trusts which have 300 or more unit holders where none of the unit holders individually or together with an associated person is entitled to 20 per cent of the units in the trust will be treated under Part 4 as listed trusts in recognition of the large number of unit holders.

The removal of the land to asset test and the inclusion of listed entities does result in the landholder model having a broader application than the land rich provisions. The 2010-11 Budget estimated that adoption of the landholder model would have a budget impact of $10 million in 2011-12 and $20 million per annum over the forward estimates.

Where applicable, the current land rich provisions charge duty on the percentage of the entity's underlying local land assets acquired.

Under the proposed landholder provisions stamp duty will apply to the underlying local land assets acquired by an entity as well as particular goods of the landholder entity which are used solely or predominantly in South Australia. The application of landholder duty to goods is subject to a number of exemptions, including stock in trade, livestock and materials used for manufacturing.

This approach will provide consistency with the general conveyance base where chattels that are transferred with land are subject to duty. The approach is broadly consistent with the landholder provisions in other jurisdictions.

Whilst the Bill replaces the whole of Part 4 with new provisions, the land holder model has adopted much of the existing machinery of the land rich provisions as the provisions are generally understood within relevant industries and work well in practice.

Changes have been made to existing provisions in order to enhance the workings and application of those provisions where issues have been identified in the past. Some of the more substantial changes are described below.

The definition of land has been extended to include interests that have a close connection to land as it is considered they should be dutiable because they are, in substance, closely comparable to ownership interests considered to be land in the Real Property Act 1886.

The interests covered by the Bill, include mining and petroleum related leases/licences, aquaculture leases and forestry property agreements, reflect the interests intended to remain in the stamp duty base when duty is removed on non-real non-residential conveyances on 1 July 2012.

The new provisions make it clear that an entity's interest in land will be taken to include an interest in anything fixed to the land but notionally severed or considered to be legally separate to the land by operation of another Act or law. This ensures that other legislation, which addresses 'land' definitional issues for other purposes, does not have unintended impacts on the manner in which stamp duty is charged. These provisions promote the equitable treatment of all property considered to be fixtures to land under the landholder arrangements.

The Bill also operates to amend the circumstances under Part 4 in which duty paid in relation to prior acquisitions can be rebated against duty payable in relation to a current transaction. In principle, the rebate provisions in the Bill are intended to ensure that duty is only payable once in relation to the effective acquisition of land assets. Where a person or a group of associates' interest in a landholding entity increases over time, duty payable under Part 4 only relates to the notional increase in the ownership of the land asset.

The Bill also contains provisions which set out in detail how the value of a relevant asset is to be determined under Part 4. These provisions are consistent with the general conveyance provisions of the Act and will allow the Commissioner of State Taxation to cause a valuation of an asset or interest to be made in circumstances where there is no evidence or there is unsatisfactory evidence provided as to the value of the asset or interest.

In addition a further provision has been included to clarify that when determining the value of an asset or interest, it is to be assumed that a hypothetical purchaser would, when negotiating the price for the asset or interest, have knowledge of all existing information relating to the asset or interest; and no account is to be taken of any amount that a hypothetical purchaser would have to expend to reproduce, or otherwise acquire a permanent right of access to and use of, existing information relating to the asset or information. This provision has been included to ensure the appropriate market value of land can be ascertained by the Commissioner for the purposes of Part 4.

The Bill also makes amendments relating to the Commissioner of State Taxation's ability to recover stamp duty under Part 4 of the Act. Currently Part 4 allows land owned by a land rich entity to be sold to recover any outstanding land rich duty due in relation to that entity. Legal advice has been received that the current provision is deficient in that the charge ranks after first charges, mortgages and any other charges that have been registered prior to the RevenueSA charge and can only last 6 months. The Bill therefore provides the Commissioner with the power to register a charge against any land of an entity and that charge will rank as a first charge over the relevant land. This provision will provide consistency with the Commissioner's powers in relation to Land Tax, the Emergency Services Levy and the First Home Owner Grant.

A concession is also being introduced in relation to the statutory funds of life insurance companies to provide that the funds are not considered to be associated persons for the purpose of Part 4. Life insurance business must be conducted through statutory funds and to protect the interests of policy holders, the operation of such funds is regulated under the Life Insurance Act 1995 (Cth.). Given the unique regulatory circumstances of statutory funds, which must be accounted for separately from the business and assets of the life insurance company, it is appropriate to treat such funds as separate and independent for the purposes of the landholder provisions.

The Bill introduces a new Part 6A of the Taxation Administration Act 1996 in relation to tax avoidance schemes. These provisions target artificial, blatant or contrived schemes that are entered into for the sole or dominant purpose of avoiding or reducing taxation payable. While RevenueSA has provisions in existing legislation that are intended to prevent tax avoidance, the provisions may not be effective in counteracting some potential schemes identified. The anti-avoidance provisions in the Bill provide a broad and consistent approach to tax avoidance across State taxes. The provisions are based on anti-avoidance provisions in the New South Wales duties legislation.

Overall it is considered that the Bill provides fairer and more robust tax outcomes which aim to strike a balance between protecting the revenue base and allowing taxpayers to structure their commercial affairs appropriately.

Finally, an unrelated amendment is also being made to provide an exemption from stamp duty to the vesting of property held by a security trustee to the trustee of a self managed superannuation fund under an instalment warrant arrangement. This exemption will essentially prevent double duty consequences arising from trust structures required in accordance with Commonwealth superannuation legislation where self managed superannuation funds borrow funds to pay for property purchases. The use of instalment warrant arrangements for property purchases by self managed superannuation funds has emerged following recent amendments to the Superannuation Industry (Supervision) Act 1993 which now permit self managed superannuation funds to borrow funds in order to invest in property in limited circumstances.

I would also like to take this opportunity to thank industry bodies for their participation in the consultation process, in particular the Law Council of Australia, the Property Council of Australia and the South Australian Farmers Federation.

I commend this Bill to Honourable Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

This clause is formal.

2—Commencement

The measure will come into operation on 1 July 2011.

3—Amendment provisions

This clause is formal.

Part 2—Amendment of Stamp Duties Act 1923

4—Amendment of section 2—Interpretation

It is necessary to define the term quoted in relation to any shares, units in a unit trust scheme or interests in such shares or units.

5—Amendment of section 71—Instruments chargeable as conveyances

These amendments will allow an exemption from stamp duty in relation to the vesting of property held by a security trustee to a self managed superannuation fund.

6—Amendment of section 85—Exempt transactions

This is a consequential amendment.

7—Substitution of Part 4

This clause provides for the repeal and re-enactment of Part 4 of the Act relating to land holding entities.

8—Transitional provision

This clause sets out the transitional provisions that are to apply in relation to new Part 4 that is to be inserted into the Stamp Duties Act 1923.

Part 3—Amendment of Taxation Administration Act 1996

9—Insertion of Part 6A

This clause provides for the enactment of a new Part of the Taxation Administration Act 1996 in relation to tax avoidance schemes.

10—Transitional provision

This clause sets out the transitional provisions that are to apply in relation to new Part 6A that is to be inserted into the Taxation Administration Act 1996.

Debate adjourned on motion of Hon. J.M.A. Lensink.

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