New South Wales 2023-24 budget: increasing taxes and reducing exemptions

On 19 September 2023, the New South Wales government released its 2023-24 budget and in doing so it made a number of significant revenue announcements which are all aimed at increasing government revenue and reducing concessions/exemptions for taxpayers. Together with some measures that had been announced ahead of the budget, we outline the key changes likely to impact businesses which include:

• replacing the corporate reconstruction exemption (CRE) with a concessional rate of duty charged at 10% of the duty otherwise payable;
• reducing the landholder duty threshold for the acquisition of a “significant interest” in a private unit trust from 50% to 20%;
• reducing the threshold for an entity to be deemed a “linked entity” for landholder duty purposes from 50% to 20%;
• providing for the registration of certain private unit trust schemes that meet defined criteria;
• increasing certain fixed and nominal duties;
• abolishing the stamp duty exemption for certain zero and low emission vehicles;
• providing for electric vehicle (EV) road user charges to apply to vehicles registered or transferred from 1 January 2024 as well as certain vehicles registered before 1 January 2024;
• changing the minimum ownership requirement for entitlement to the land tax principal place of resident (PPR) exemption; and
• increasing coal royalties by 2.6%.

Many of these amendments are being introduced in the Treasury and Revenue Legislation Amendment Bill 2023 (NSW) (the Bill).  Further details on these announcements are outlined below.

Stamp Duty

• CRE abolished, concession introduced: From 1 February 2024, the CRE for transfers of assets between the members of a single corporate group for the purpose of restructuring will be replaced with a concessional duty charged at 10% of the duty otherwise payable. This aligns NSW with the approach taken in Victoria.
• Reducing the threshold for the acquisition of a “significant interest” in a private unit trust: From 1 February 2024, the threshold for the acquisition of a “significant interest” in a landholder that is a private unit trust will be reduced from 50% to 20%, which also aligns with the position in Victoria.
• Reducing the threshold for a “linked entity”: From 1 February 2024, an entity will now be linked for landholder duty purposes when it is entitled, in the event of a distribution of all the property of the other entity, to receive not less than 20% of the value of property of the other entity, rather than the current rate of 50%. This also aligns with the position in Victoria.
• Registration of wholesale unit trust schemes: The Bill introduces provisions that allow for the registration of wholesale unit trust schemes which will be excluded from the definition of a private unit trust. The effect of this is that a person will acquire a significant interest in a registered wholesale unit trust scheme when they are entitled to an interest of 50% or more rather than the new 20% threshold for other private unit trusts. These changes will also apply from 1 February 2024;
• Increases to fixed or nominal duty: From 1 February 2024, a number of fees will be increased to assist Revenue NSW in accounting for increased administration costs including:
  • duty on transfers in conformity with an agreement and the minimum amount of duty will increase from $10 to $20;
  • certain nominal duties (eg change of trustee, property passing to beneficiaries and property vesting in an apparent purchaser) will increase from $50 to $100;
  •  declarations of trust over non-dutiable property and certain transfers related to superannuation funds will increase from $500 to $750.
• EV exemption abolished: From 1 January 2024, stamp duty exemption in s 270D for certain zero and low emission vehicles will cease.  

Taxation Administration Act

• Clarifying grounds for remission of interest: The Bill proposes to amend certain remission of interest provisions in the Taxation Administration Act 1996 (NSW) with effect from 1 February 2024. Under the new provisions, the Chief Commissioner is given the ability to issue guidelines to set out how interest must be remitted. The amendments also clarify that the remission of interest is not relevant to the remission of penalty tax (and vice versa).

Land Tax

• Land Tax indexation formula to be amended: due to an error in the calculations underpinning the 2021 land tax threshold which produced higher than intended land tax thresholds for the last three years, the government is introducing amending legislation to correct this error to ensure the land tax base is not eroded.
• PPR exemption changes: changes to minimum ownership requirement will require people to hold a minimum 25% stake in a property to be eligible to claim the PPR exemption.  

Payroll Tax

• There were no significant payroll tax announcements in the budget.

Coal Royalties

• On 6 September 2023, the NSW government announced the Coal Market Price Emergency declaration will end on 30 June 2024 and coal royalties will increase by 2.6% commencing in the next financial year. The following rates will apply from 1 July 2024: 
  • Open Cut coal – 10.8%
  • Underground (mines less than 400m below ground)– 9.8%
  • Deep underground (mines more than 400m below ground) – 8.8%

EV Road User Charge

• Road User Charge (RUC): All zero and low-emission vehicles (including plug-in hybrids) registered for the first time or transferred after 1 January 2024 will be liable to pay the RUC from the earlier of 1 July 2027 or when EVs amount to 30% of new vehicle sales in NSW.  A vehicle registered before 1 January 2024 and in relation to which duty was not paid under the Duties Act 1997 because of the operation of s 270D (EV exemption) will also be liable to pay the RUC when it commences. Transitional arrangements will be introduced for people who purchase an EV before 1 January 2024.

What does this mean for taxpayers?

Tax laws are becoming more complex and taxes are increasing for taxpayers operating in NSW. The Chief Commissioner is gaining more control over the remission of interest and more taxpayers will now be liable to pay landholder duty. The changes to EVs are contrary to encouraging taxpayers to move to more efficient vehicles.

Any taxpayers contemplating internal transfers of dutiable assets should consider bringing forward any applications for CRE and subsequent transfers to ensure the transfers occur without any duty being payable. After 1 February 2024, 10% of the duty otherwise payable will be incurred, which may be prohibitive to undertaking the internal restructure. Given duty will soon be payable, it also means that taxpayers will now need to incur the cost of obtaining a valuation for internal asset transfers, as the Chief Commissioner will likely want to ensure he is receiving 10% of the unencumbered market value of the assets transferred. Also, from this date, further dutiable assets may be liable for landholder duty as a result of the change to the definition of a linked entity.

All of these changes will increase the cost of doing business which will inevitably impact on businesses ability to invest in projects and employ staff in NSW.