State taxes

Recent developments include the release of the following State and Territory budgets for 2007-08 - New South Wales, Queensland, the Australian Capital Territory, South Australia, and Tasmania.

New South Wales Budget 2007-08: outline of revenue initiatives

The New South Wales Budget for the 2007-08 financial year was delivered on 19 June 2007.

The Budget provides some good news. Not only are no new taxes introduced, but the abolition of mortgage duty is brought forward, the rate of land tax is reduced and changes to payroll tax have been made.

Abolition of mortgage duty - ahead of schedule

The Budget announces that mortgage duty will be abolished ahead of the schedule previously announced in the 2006-07 Budget. Originally, mortgage duty was to be halved as of 1 January 2010 and abolished as of 1 January 2011. Instead, mortgage duty will be abolished in the following three stages:

1. mortgage duty for individuals taking out mortgages for owner-occupied residences will be abolished from 1 September 2007
   
2. mortgage duty for individuals taking out mortgages for non-owner-occupied residences will be abolished from 1 July 2008, and
   
3. mortgage duty will be totally abolished from 1 July 2009.

• hire of goods duty will be abolished from 1 July 2007
• lease duty will be abolished from 1 January 2008, and
• unquoted marketable securities duty will be abolished from 1 January 2009.

The only change announced in the Budget is the reduction of the land tax rate from 1.7 per cent to 1.6 per cent (effective as of 1 January 2008).

Payroll Tax - harmonisation

The Government has reaffirmed its commitment to harmonising payroll tax administration with Victoria. Under the harmonisation, from 1 July 2007, the following employer payments will be exempt from payroll tax:

• payments for maternity and adoption leave

• employer contributions to portable long service leave, redundancy or severance schemes (provided they are not taxable for fringe benefit tax purposes), and

• non-monetary superannuation contributions.

• the specific exemption for wages paid to financial planners under relevant contract provisions will be removed

• the exemption for payments under a contract exceeding $800,000 will be removed

• the exemption for contractors providing services to the public generally will be modified to require those services to be provided in the same financial year, and

• the exemption provided to employment agents that on-hire staff to a client with wages below the $600,000 tax-free threshold will be removed (however end users employing on-hired staff will be exempt on the wages paid by the employment agent).

From 1 July 2007, small business owners who are not liable to pay payroll tax will receive a full rebate of the cost of registering one work vehicle for every new apprentice hired during 2007-08. For the first year of the apprentice’s employment, the rebate will cover the vehicle’s registration fee and weight tax. For the second and third year of the same apprentice’s employment, the rebate will cover the vehicle’s registration fee.

Queensland Budget 2007-08: outline of revenue initiatives

The Queensland Budget for the 2007-08 financial year was delivered on 5 June 2007.

Land Tax

The following land tax changes are proposed from 1 July 2007:

• the tax-free threshold for resident individuals is to be increased from $500,000 to $600,000

• the exemption threshold for companies, trustees and absentee individuals is to be increased from $300,000 to $350,000.

Mortgage duty

There will be a 50 per cent reduction in mortgage duty from 1 January 2008 (from 0.4 per cent to 0.2 per cent) and mortgage duty will be completely abolished from 1 January 2009.

Duty on transfer of core business assets

There was confirmation that duty on the transfer of non-land business assets will be abolished by 2011.

Motor vehicle registration duty

The current rate of vehicle registration duty is 2 per cent of the dutiable value of the vehicle. From 1 January 2008, the 2 per cent duty will be increased for all vehicles except for hybrid and electric vehicles. From 1 January 2008, the rates will be as follows:

Payroll tax

From 1 July 2008, the Government will be implementing the measures recommended by the
inter-jurisdictional consistency project (ICP) for increased harmonisation of payroll tax across jurisdictions, including the harmonised legislation announced by the Victorian and NSW governments.

A number of the payroll tax consistency measures will reduce the payroll tax base, while other changes will broaden it. Overall, the changes to the payroll tax system are expected to be revenue neutral.

Australian Capital Territory Budget 2007-08: outline of revenue initiatives

The Budget for the 2007-08 financial year was delivered on 5 June 2007. The Budget does not introduce any new stamp duties, but introduces changes designed to improve the affordability of housing, and abolishes duty on hiring arrangements effective as of 1 July 2007. No changes will be made to the payroll tax or land tax rates.

Home buyer concession scheme

This scheme provides for duty at a concessional rate to assist persons in purchasing residential land or a home. The eligibility requirements include an income test and a property value test.

The Budget increases the upper limit property threshold for house and land purchases from 1 July 2007. For the purchase of established houses, the threshold will increase from a purchase price of $331,000 to $365,000. For the purchase of vacant land, the threshold will increase from a purchase price of $182,700 to $201,500.

Changes will also be introduced to allow those eligible under the scheme to defer conveyance duty for up to five years.

Abolition of duties

Duty on hiring arrangements will be abolished on 1 July 2007.

Further, the Government has re-affirmed its commitments under the Inter-Governmental Agreement by confirming the abolition of lease duty from 1 July 2009 and the abolition of duty on the transfer of unlisted shares and marketable securities from 1 July 2010.

Victims’ service levy

A victims’ service levy will be introduced by the imposition of a $10 levy on all traffic infringement notices and court-imposed fines. The levy will be used to assist in the provision of expanded services to victims of crime and improve the overall response to victims of the criminal justice system.

South Australia Budget 2007-08: outline of revenue initiatives

The Budget for the 2007-08 financial year was delivered on 7 June 2007.

Payroll tax rates to be reduced

From 1 July 2007, the payroll tax rate will be reduced to 5.25 per cent from its current rate of 5.5 per cent.

A further reduction of the payroll tax rate to 5 per cent is proposed for wages paid or payable on or after 1 July 2008.

Legislation required to implement the payroll tax reductions will not be passed prior to 1 July 2007. Accordingly, from 1 July 2007, taxpayers can choose to pay payroll tax by either calculating their payroll tax payments:

• at the rate of 5.25 per cent (if legislation is not passed, any underpayment will be adjusted as part of the Annual Reconciliation process), or

• at the rate of 5.5 per cent (if legislation is passed, any overpayment will be adjusted as part of the Annual Reconciliation process).

New anti-avoidance provisions are to be inserted into the land tax legislation to curb the practice of owners of multiple land holdings structuring their land ownership so as to avoid paying higher marginal rates of land tax. These provisions are directed at land holders who arrange matters so that another person holds a minority interest in a parcel of land, thereby creating different legal ownership interests for that parcel of land so that it is not aggregated with land held by the person wholly in his/her own name.

Interests in land of less than 5 per cent

In cases where land is owned by two or more persons and one or more of those persons hold an interest in the land of 5 per cent or less (“the Minor Interest”), the person or persons holding the Minor Interest will be taken not to be an owner of the land for the purposes of the land tax legislation.

In such cases, the land tax payable in respect of the relevant land will be assessed, and payable, as if the land were wholly owned by the owner or owners of the land who do not hold the Minor Interest (“the Owner”).

The relevant land will therefore be aggregated with any other land owned by the Owner for the purposes of assessing land tax.

The Owner may apply to the Commissioner, in writing, to request that the Minor Interest not be disregarded, on the basis that the Minor Interest was created solely for a purpose, or entirely for purposes, unrelated to reducing the amount of land tax payable in respect of any land. The provisions set out a number of criteria to which the Commissioner should have regard for the purposes of assessing an application by an Owner in relation to whether a Minor Interest should not be disregarded. These include:

• the nature of the relationships between the owners

• the lack of consideration or the amount or source of the consideration provided in relation to the creation of the interest

• the form and substance of any transactions associated with the creation or operation of the interest, including the legal and economic obligations of the persons and the economic and commercial substance of any such transaction

• the way any transaction associated with the creation or operation of the interest was entered into or carried out.

The new anti-avoidance provisions will take effect on 30 June 2008, and will operate from the 2008-09 land tax assessment year.

Mortgage duty and rental duty to be reduced

It was confirmed in the Budget that mortgage and rental duties will be phased out as follows:

• a one-third reduction from 1 July 2007
• a further one-third reduction from 1 July 2008
• abolished from 1 July 2009.

The Budget also confirmed the phasing out of duty on non-quoted marketable securities and business related conveyances (other than land and buildings), as follows:

• a 50 per cent reduction from 1 July 2009
• abolished from 1 July 2010.

Mortgage duty

It was confirmed in the Budget that mortgage duty, which was halved on 1 July 2006, would be completely abolished from 1 July 2007.

Duty on non-real-property (business) conveyances

There was confirmation that duty on the transfer of non-real-property (business) assets would be abolished from 1 July 2008.

Duty on the transfer of heavy vehicle registrations

From 1 October 2007, the rate of duty on the transfer of heavy vehicle registrations will be reduced from the current 3 per cent to 1 per cent on the greater of the consideration given for the vehicle or the market value of the vehicle at the time of acquisition.

Motor tax

Motor tax on light vehicles will be reduced by 21 per cent from 1 October 2007.

Subsidy arrangements for petrol and on-road diesel will cease from 30 September 2007, to fund motor tax and duty relief.

Payroll tax harmonisation

The Government has announced its intention to harmonise Tasmania’s payroll tax arrangements with the framework that will apply in Victoria and New South Wales.

Specifically, Tasmania proposes to retain its existing rates and thresholds, but will adopt the harmonised Victorian and New South Wales arrangements from 1 July 2008. Legislation to this effect will be introduced in 2007-08. It is estimated that this arrangement is expected to cut compliance costs for around 70 per cent of Tasmanian payroll tax registrants that operate across jurisdictions.

The Tasmanian Government has also expressed its intention to work with Victoria and New South Wales to explore opportunities to streamline administrative arrangements (such as systems and reporting) to further reduce compliance costs.

For further information, please complete the following form, or contact:

Barry Diamond, Partner
PricewaterhouseCoopers Tax
Stamp Duty
Phone: +61 3 8603 1118

Angela Melick, Partner
PricewaterhouseCoopers Tax
Stamp Duty
Phone: +61 2 8266 7234

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