STATE TAXATION ACTS AMENDMENT BILL 2018 Second reading
Mr PALLAS (Treasurer) (14:18:22) — I move:
That this bill be now read a second time.
Speech as follows incorporated into Hansard under standing orders:
I am pleased to introduce this bill which amends Victoria’s taxation and revenue laws including the Duties Act 2000, Payroll Tax 2007 and the Unclaimed Money Act 2008.
This bill delivers Budget initiatives that will continue the Victorian Government’s commitment to delivering greater benefits to regional Victoria. The bill also makes a number of other amendments to Victoria’s taxation and revenue laws to ensure they continue to reflect the underlying policy intent and are easy to apply and understand by correcting drafting defects and closing loopholes.
As part of the 2017 State Budget, the Andrews Labor Government recognised the importance of allowing businesses to grow and to have a positive impact on employment, especially in regional Victoria by reducing the payroll tax rate paid by regional Victorian businesses by 25 percent to a rate of 3.65 per cent. The 2018 State Budget reduces the payroll tax rate for regional Victorian businesses even further to 2.425 per cent, ensuring the lowest payroll tax rate anywhere in Australia. This rate will continue to apply to regional Victorian businesses where at least 85 per cent of payroll goes to regional employees. Whilst the Andrews Labor Government has already overseen strong regional employment growth, this measure will encourage even more regional employment opportunities.
The Government is a strong supporter of the Victorian agricultural sector. To this effect, this bill will deliver even more important benefits to regional Victoria by supporting our farming communities by increasing the duty exemption threshold for the young farmer duty exemption from $300,000 to $600,000. This change aligns the young farmer duty exemption threshold with the exemption threshold for the first home buyer duty exemption. This will increase the maximum value of the duty exemption from $13,070 to $31,070. A duty concession will apply for purchases valued between $600,001 and $750,000.
The Government will introduce an exemption from the first home buyer duty concession/exemption residency requirement for Australian Defence Force personnel. Currently, an applicant for the first home buyer duty concession/exemption must reside in their property for a continuous period of 12 months commencing within 12 months of becoming entitled to possession of the purchased property. Whilst an applicant can apply for a variation to the residency requirement, due to the nature of employment of Australian Defence Force personnel, there are instances where they will be unable to do so within the required time frame or may not be able to fulfil the varied residency requirement due to a work assignment. These changes will align the the first home buyer duty concession/exemption policy with the policy for the First Home Owner Grant for Australian Defence Force personnel by providing the legislative basis to exempt Australian Defence Force personnel from needing to meet the residency requirement at all.
The bill introduces an exemption from the foreign purchaser additional duty for foreign purchasers that jointly purchase a principal place of residence with their spouse/domestic partner who is not considered a foreign natural person (e.g. is an Australian citizen). One of the objectives of the foreign purchaser additional duty provisions was to ensure a fair and equitable contribution is made to state revenue by foreign buyers who otherwise may not pay tax in Victoria. This exemption recognises that in some circumstances temporary residents, who are foreign purchasers and who jointly purchase a home with their Australian spouse/domestic partner, have been living and working in Victoria for a number of years, meaning that they have been making a contribution to the Victorian economy and are sharing in the tax burden. Importantly, for the exemption to apply, the property must be the principal place of residence of the foreign purchaser and their spouse or domestic partner.
The bill also extends the duty exemption relating to certain equity release products. These are financial products that enable existing homeowners, usually older Australians, to obtain a current financial benefit (i.e. a lump sum payment or an income stream) from a lender by trading equity in their home. The exemption from duty currently only applies to equity release products that are offered by financial institutions, which are subject to various prudential standards and consumer protection regimes. The duty exemption is being expanded to encompass a larger range of ‘permitted providers’, which will include a body regulated by the Australian Prudential Regulation Authority. This will ensure that these entities are subject to the same or similar prudential oversight as financial institutions. The expanded exemption will encourage new participants/capital providers to provide equity release programs, thereby supporting more senior Victorians to fund their retirement lifestyle, particularly those that may be asset rich but cash poor.
This bill also makes a number of amendments aimed at improving the general operation of Victoria’s revenue laws by correcting technical or drafting defects, removing anomalies and inconsistencies and addressing unintended outcomes.
The Duties Act 2000 (Duties Act) charges duty on a transfer, or change in beneficial ownership, of dutiable property (e.g. land or an interest in land), unless an exemption applies. To this effect an acquisition of a partnership interest where the partnership held land was considered to be a dutiable transaction. However, the Court of Appeal recently handed down a decision in Commissioner of State Revenue v Danvest Pty Ltd  VSCA 382 (Danvest) that had the effect of overturning this long‑held taxation position. The consequence of the Danvest decision is that an acquisition of a partnership interest in a partnership that holds land (e.g. via a nominee) is no longer liable to duty in Victoria.
The Danvest decision can also give rise to other inconsistent and unintended taxation outcomes by making certain partnership transactions liable to higher duty compared to before the decision and in some instances missing out on the corporate reconstruction exemption. This bill makes the necessary amendments to restore the taxation position under the Duties Act to what it was understood to be before the Danvest decision and will ensure that Victoria’s position remains aligned with all other jurisdictions.
This bill will also clarify the application of the duty exemption for transfers of real property between spouses and domestic partners where the transfer is their principal place of residence. Currently the exemption applies where the transfer is made for no consideration. Under the Duties Act, “consideration” can include all encumbrances, including a mortgage over the property that is the subject of the transfer. To ensure that the exemption continues to operate as intended, the bill makes an amendment to allow the exemption to apply when a mortgage is being assumed for the subject property by the transferee, being one of the spouses/domestic partners.
The bill makes technical amendments to the apparent purchaser duty exemption to ensure that it operates as intended. Property is sometimes vested in an ‘apparent purchaser’ to hold on trust on behalf of a ‘real purchaser’ who has provided the purchase money for the property. Where duty was paid on the initial vesting of the property in the ‘apparent purchaser’, then no further duty is payable upon the subsequent transfer of that property to the ‘real purchaser’. The intention is to avoid double duty being imposed in situations where a transfer takes place without any change to the beneficial ownership of the property. The amendments made by this bill will ensure that the exemption continues to only apply to exempt a transfer where the Commissioner of State Revenue is satisfied that the real purchaser has paid all of the purchase money, including the deposit and all mortgage repayments.
A second amendment to the apparent purchaser exemption will ensure that where a real purchaser ultimately acquires a greater interest in the property than their beneficial interest under the trust, duty will only be payable to the extent of the interest acquired that is greater than the beneficial interest under the trust.
The bill will also ensure that the interests of all foreign persons and their associates are to be taken into account when determining whether a foreign person has a controlling interest in a corporation or substantial interest in a trust for the purposes of the foreign purchaser additional duty. For example, this can include where the shareholders are foreign but not associated with each other. This amendment will maintain the integrity of the foreign purchaser additional duty provisions by ensuring that entities that are majority foreign owned are charged foreign purchaser additional duty by aggregating the interests of all foreign persons (whether they are associated or not).
The Duties Act provides for a concession from duty for a transfer of property in certain circumstances. For example, under the landholder duty provisions, the duty charged on a relevant acquisition in a public landholder is 10% of the duty otherwise payable. Similarly and consistent with this concession, where a conversion of a private entity to a public entity occurs, landholder duty is charged at 10% of the duty otherwise payable. The intention of the foreign purchaser additional duty provisions is that where there is a concession from duty for a transfer of property, the concession does not apply to the calculation of foreign purchaser additional duty. That is, the concession only applies to the general rate of duty. Accordingly, the landholder duty provisions currently provide that the concession relating to a relevant acquisition in a public landholder does not apply to the calculation of the foreign purchaser additional duty chargeable. However, currently there is no equivalent exclusion in relation to the conversion provisions. The bill will make an amendment to clearly reflect the intention of the foreign purchaser additional duty provisions, so that the concession in the conversion provisions does not apply to the calculation of foreign purchaser additional duty.
Under the Unclaimed Money Act 2008 (Unclaimed Money Act), the Registrar of Unclaimed Money may pay a claim upon being satisfied that the claimant is the legal owner of unclaimed money. A significant number of owners of unclaimed money listed on the Unclaimed Money Register are deceased estates. Currently, unclaimed money applications lodged by executors and administrators of deceased estates for which grants of probate or letters of administration have been sealed (or re‑sealed) by Supreme Courts of other Australian States or Territories are not able to be accepted in Victoria. This bill will make amendments that will recognise executors and administrators of deceased estates as representing those owners of unclaimed money under the Unclaimed Money Act, where a grant has been sealed or re‑sealed by a Supreme Court of any Australian jurisdiction.
The passage of this bill will ensure that regional Victoria will continue to benefit from the Andrews Labor Government through the further reduction in the payroll tax rate for regional employers and the increase in the young farmer duty exemption threshold. Other Budget measures contained in this bill will provide valuable support to Australian Defence Force personnel who are first home buyers, by allowing them to fulfil their deployment obligations without it impacting on their eligibility for a duty concession/exemption. Finally, this bill expands a number of tax exemptions and makes a number of other amendments to Victoria’s taxation and revenue laws to ensure they continue to reflect the underlying policy intent and improve the operation of Victoria’s tax system.
I commend the Bill to the house.
Debate adjourned on motion of Mr M. O’BRIEN (Malvern).
Debate adjourned until Tuesday, 22 May.