Changes to Duty on Corporate Reconstruction and Consolidation
From 1 February 2024, the transfer duty exemption for corporate reconstruction and consolidation will be changed from a 100% exemption to a 90% concession.
Section 273B of the Duties Act 1997 (NSW) (Duties Act) has recently been amended by schedule 1 of the Treasury and Revenue Legislation Amendment Act 2023, meaning that from 1 February 2024, transactions involving corporate reconstructions or consolidations will not be entitled to the full exemption from transfer duty.
So, who does this legislation affect and when will duty arise?
Reconstruction and Consolidation
A corporate reconstruction occurs when a corporate group undertakes the process of reorganising its business structure. A reconstruction could occur for any number of reasons, including to enable a corporate group to adjust or increase its market value or utilise tax minimisation strategies.
With a similar commercial purpose, corporate consolidation refers to amalgamating different units of entities into a head corporation.
A corporate reconstruction or consolidation may include the transfer of dutiable property (for example, an interest in land) between corporations in the same corporate group. Normally, such a transfer would attract the payment of transfer duty.
The current provision
Section 273B of the Duties Act currently provides for a 100% exemption of duty for transactions that arise as part of a corporate reconstruction and/or consolidation. In the case of corporate reconstruction, an entity could apply for the full exemption by completing the relevant forms and evidencing that the transaction is:
(a) a genuine corporate reconstruction, and
(b) for the purpose of changing a corporate group’s structure or the holding of assets; and
(c) not for the purpose of avoiding or reducing duty or tax liabilities.
What Has Changed
From 1 February 2024, transactions that were previously entitled to a full exemption will only be entitled to a 90% reduction in duty, meaning duty will be payable at a rate of 10% of the full ad valorem duty. To be eligible for the reduction, parties will still be required to satisfy the same conditions regarding the reconstruction or consolidation and provide evidentiary documentation in support.
Once in effect, the amended concessional rate will align with legislation applicable in Victoria. In Victoria however, if a subsequent eligible transaction occurs on the same dutiable property, between members of the corporate group and within 30 days of the previous transaction, the duty charged on the original transaction can be credited towards (or deducted from) the duty payable on the second transaction. This additional exemption is not available in New South Wales, with all subsequent transactions being assessed on the same basis (irrespective of any previous amounts paid).
Key Dates
Be aware of the date of the transaction. The current full exemption applies to:
Transactions occurring before 1 February 2024; and
Transactions occurring on or after 1 February 2024 if:
(a) the transaction arose from an agreement or arrangement entered into before 19 September 2023; and
(b) the exemption application is lodged prior to 1 April 2024
After 1 February 2024, be sure to apply the reduction rate by submitting the concession form, rather than the exemption form.
Key Takeaways
In s273B of the Duties Act, “Exemption” of duty is replaced by “Reduction in duty”.
Eligible transactions are now only eligible for a 90% reduction in transfer duty (rather than a full exemption).
If your transaction arose prior to 19 September 2023, ensure you lodge your application prior to 1 April 2024 to be eligible for the full exemption.
