State taxes

New South Wales - draft report by the Independent Pricing and Regulatory Tribunal

On 16 June 2008, the New South Wales (NSW) Independent Pricing and Regulatory Tribunal (IPART) released its draft report, Review of State Taxation, which recommends wide-ranging changes to the NSW tax system.

The draft report notes that IPART’s assessment of NSW taxes against the criteria for good tax design - efficiency, equity, simplicity, transparency, robustness and interstate competitiveness - found that these taxes perform relatively poorly against some or all of these criteria. In particular, IPART found that from an economic perspective, none of these taxes are efficient in their current form. As a result, IPART expressed the view that the burden of taxation on business and individuals is greater than it needs to be and noted that taxes can distort economic decision-making by individuals and businesses and divert economic resources away from their optimal usage.

IPART’s recommendations for reform of the NSW tax system include, in the short term:

• reducing the payroll tax threshold from $600,000 per annum to $500,000 per annum (we note that, in contrast, the NSW Budget for 2008-2009 announced that the payroll tax threshold in NSW is to be indexed upwards annually based on CPI, with the threshold from 1 July 2008 to increase from $600,000 to $623,000)

• reducing the payroll tax rate from 6.0 percent to 5.75 percent (in contrast, the NSW Budget for 2008-09 announced a reduction in the rate to 5.5 percent, starting with a reduction to 5.75 percent from 1 January 2009, 5.65 percent from 1 January 2010 and 5.5 percent from 1 January 2011)

• removing the payroll tax exemption for local councils

• abolishing the stamp duty exemption for third party motor vehicle personal injury insurance

• reducing the standard rate of stamp duty for general insurance from 9 percent to 6 percent

• replacing the first three rating levels for purchaser transfer duty with a single level for dutiable properties up to $80,000 and reducing the duty payable up to this level to 1 percent

• purchaser transfer duty should be indexed annually based on an index of movements in all NSW property values

• abolishing duty on purchase of caravans and camper trailers

• motor vehicle registration duty should be replaced by an annual motor vehicle charge on a revenue-neutral basis

• the NSW Government should consider increased use of environmental levies

• user fees in NSW should be benchmarked with other States and should be linked to CPI increases where there are no other arrangements for updating these charges, and

• the NSW Government should advocate that a joint Commonwealth-State review be undertaken of options for further expansion of Commonwealth taxes to fund the reduction or abolition of inefficient State taxes.

• in the medium term, consideration should be given to changing the tax unit for land tax from joint ownership to the individual, funded by a decrease in the tax-free threshold, and

• in the long term, the payroll tax rate should be reduced with the long term goal of achieving interstate parity in this rate, and a strategy should be developed for increasing property holding taxes (for example by broadening the land tax base, increasing the land tax rate and/or increasing municipal rates on land values) to fund substantial reductions in purchaser transfer duty and insurance taxes on a revenue neutral basis.

New South Wales - 2008-09 Budget

The NSW Budget for the 2008-09 financial year was delivered on 3 June 2008. The Budget introduces $3.6 billion in tax cuts. The tax measures announced in the Budget are outlined below.

Reduction and indexation of payroll tax

Payroll tax will eventually be reduced to 5.5 percent, starting with a reduction to 5.75 percent from 1 January 2009, 5.65 percent from 1 January 2010, and 5.5 percent from 1 January 2011.

The payroll tax threshold will be indexed annually based on movement in the Sydney Consumer Price Index over the year to the previous March quarter - from 1 July 2008 the threshold will increase from $600,000 to $623,000. This measure is intended to provide tax relief to businesses by allowing for the impact of inflation on the cost of wages to the business.

Abolition of transfer duty on non-land business assets

The abolition of transfer duty on transfer of ‘non-land’ business assets will be brought forward from 1 July 2012 to 1 January 2011. Accordingly, no duty will be payable on the transfer of ‘non-land’ assets such as goodwill, patents, trademarks and other intellectual property where the transfer occurs, or the agreement to transfer is entered into, on or after 1 January 2011.

Changes previously announced

The following changes announced separate from the Budget announcement, are effective as specified:

• abolition of unquoted marketable securities duty from 1 January 2009
• abolition of mortgage duty on non-owner occupied residential property from 1 July 2008, and
• the complete abolition of mortgage duty from 1 July 2009.

Under the new taxation and exclusivity agreement between the Government and Tabcorp Ltd entered into in October 2007, Star City Casino will pay higher duty rates. From 1 July 2008, there will be a single rate scale applying to both table games and electronic gaming machines, and tax will be calculated on a marginal rate scale related to gaming revenue. The new base rate will be 13.04 percent in 2008-09, rising to 16.41 percent from 2012-13. The new maximum marginal rate will be 38.04 percent in 2008-09, rising to 38.91 percent from 2009-10.

Keno extension to hotels

The NSW Government granted an extension of Keno into hotels from 11 September 2007 (before that time, only registered clubs and the Star City Casino could offer Keno). The marginal tax rates for Keno in hotels are 8.91 percent and 14.91 percent. The higher marginal tax rate of 14.91 percent applies above annual player loss of $37.7 million.

Queensland - 2008-09 Budget

The Queensland Budget for the 2008-09 financial year was delivered on 3 June 2008.

The tax measures announced in the Budget are outlined below.

Mortgage duty

Full abolition of mortgage duty has been brought forward to 1 July 2008 (formerly full abolition was to occur on and from 1 January 2009). Legislation to effect this change was passed on 6 June 2008. The legislation also contains transitional provisions to address matters including mortgages that are partially executed at 1 July 2008, advances that are made after 1 July 2008, and the duty on release of mortgages after 1 July 2008.

Stamp Duty - first home buyers

From 1 July 2008, there will be an increase in the transfer duty exemption threshold from $320,000 to $350,000 for first home buyers, with a further increase to $500,000 from 1 September 2008.

Stamp duty - principal place of residence stamp duty concession

From 1 July 2008, there will be an increase in the transfer duty concession threshold for those purchasing a principal place of residence, other than their first home, from $320,000 to $350,000.

Change in transfer duty rate

From 1 July 2008, the transfer duty rate schedule will be revised and simplified, reducing the number of rate bands from seven to five, with the highest marginal rate increasing from 4.5 percent to 5.25 percent as shown in table 1 below.

Table 1: Change in transfer duty rate

For property with a value of $200,000, duty under the new rates will be $5,425 whereas under the current rate, the duty would be $5,600. For property with a value of $1 million, duty under the new rates will be $38,175 whereas under the current rate, the duty would be $37,475.

Land tax

From 1 July 2008, the land tax exemption will be extended to cover aged care facilities, in addition to the existing exemption for retirement villages. Also, the transfer duty Homebuyer concession will be extended and apply to retirement village residents who enter into lease and sub-lease occupancy arrangements.

The land tax schedule has been revised and simplified from 1 July 2008, reducing the number of rate bands.

The new land tax schedule for resident individuals is shown in table 2.

The new land tax schedule for companies, trustees and absentees is shown in table 3.

Table 2: Land tax schedules - resident individuals

Table 3: Land tax schedules - companies, trustees and absentees

As a result, the amount of tax payable at the land tax threshold will be reduced:

• for resident individuals - from $1,200 to $500, and
• for companies, trustees and absentees - from $2,250 to $1,450.

The payroll tax exemption threshold of $1 million and current payroll tax rate of 4.75 percent will remain. The current exemption threshold reduces progressively by $1 for every $3 of wages over the threshold, with the result that no deduction is available for businesses with an annual payroll of $4 million or more.

However, the payroll tax exemption deduction for small and medium sized businesses with an annual payroll of between $1 million and $5 million is to be extended, such that these small and medium sized businesses will be entitled to a deduction which phases out at a rate of $1 in every $4 of taxable wages over the threshold.

Royalties on coal and base and precious metals

Currently, a 7 percent royalty rate is charged by Queensland in relation to coal revenue. In light of increases in coal contract prices and a strong market - which increases the value of rights to extract resources in Queensland - this royalty rate is to be increased.

A two-tier royalty on coal will be introduced from 1 July 2008, with the current 7 percent rate to apply to coal revenue up to $100 per tonne, with a higher 10 percent rate to apply to the portion of revenue above $100 per tonne.

There will be a revision of royalty rates applicable to base and precious metals, including elimination of the fixed rate, from 1 January 2011.

Tasmania - 2008-09 Budget

The Tasmanian Budget for the 2008-09 financial year was delivered on 12 June 2008. The Budget did not introduce any new taxes or increase the rate of any existing taxes. The tax measures announced or confirmed in the Budget are outlined below:

Reduction of red tape and compliance costs

The Tasmanian Government announced its commitment to reducing red tape and compliance costs facing Tasmanian business, stating that a reference group called the Business Regulation and Taxation Reform Reference Group will be formed next month to examine red tape and taxation reform.

Payroll tax harmonisation

From 1 July 2008, Tasmania’s payroll tax arrangements will mirror those in New South Wales (NSW) and Victoria, except in terms of the tax-free threshold and the rate of tax which applies. The Payroll Tax Bill 2008, which was recently introduced into Parliament, is a rewrite of the payroll tax law and effects the required legislative changes for harmonised payroll tax arrangements with NSW and Victoria.

The Government announced that the harmonised arrangements should result in savings for 70 percent of businesses registered for payroll tax purposes in Tasmania, through reduced compliance costs and increased certainty through the adoption of uniform payroll tax laws.

The Tasmanian Government is also working with NSW and Victoria to identify opportunities to streamline administrative arrangements in relation to payroll tax (such as systems and reporting) to further reduce compliance costs.

Stamp duty - confirmation of previous announcement

The Tasmanian Government confirmed its commitment to the abolition of a number of heads of duty. In line with previous announcements, the Government confirmed that duty on ‘non-real property’ business conveyances will be abolished from 1 July 2008. This will remove duty on the transfer of business assets such as:

• goodwill
• a statutory business licence
• a right to use a statutory business licence
• a business name
• a right under a franchise agreement, and
• intellectual property.

South Australia - 2008-09 Budget

The South Australian Budget for the 2008-09 financial year was delivered on 5 June 2008.

The tax measures announced in the Budget are outlined below:

Payroll tax threshold increased

From 1 July 2008, the payroll tax threshold will be increased from $504,000 to $552,000. Although legislation implementing the change may not be passed by Parliament prior to 1 July 2008, payroll tax returns which calculate the relevant deduction entitlement based on the increased threshold of $552,000 in relation to wages paid or payable on or after 1 July 2008, will be accepted by RevenueSA. However, taxpayers may continue to calculate their deduction entitlement based on the existing payroll tax threshold until legislation has been amended. Any overpayment (or underpayment) of payroll tax following the passing (or non-passing) of the legislation will be adjusted as part of the Annual Reconciliation process.

Further, as announced in the 2007-08 Budget, the payroll tax rate will be reduced to 5 percent from 5.25 percent from 1 July 2008 (the legislative amendment for this change has already been passed by Parliament).

New First Home Bonus Grant replaces existing stamp duty concession

For first home contracts entered into on or after 5 June 2008 and for owner builders who commence construction on or after 5 June 2008, the current stamp duty First Home Concession will be replaced with a $4,000 First Home Bonus Grant for first home purchases with a market value up to $400,000. The First Home Bonus Grant will be phased out for first home purchases valued between $400,000 and $450,000.

The new First Home Bonus Grant will be in addition to the $7,000 First Home Owners Grant. The eligibility conditions for the First Home Bonus Grant will be the same as those for the First Home Owners Grant.

Until the legislation is amended, the First Home Bonus Grant will be provided by way of an ex-gratia payment. Applications for the stamp duty First Home Concession that were made on or after 5 June 2008 will not be accepted.

It is important to note that the First Home Bonus Grant will not be available if the Commissioner is satisfied that the relevant purchase contract replaced a contract made before 5 June 2008 where the earlier contract was for the purchase of the same home or was a comprehensive home building contract to build the same or a substantially similar home.

Exemption for transfers of subdivided trust property expanded

The existing exemption for the transfer of land to beneficiaries following a subdivision of Torrens title property held in trust will be expanded to cover situations where trust property is subdivided into community or community strata titles and subsequently transferred to the beneficiaries. The exemption will take effect once the legislation is amended, which is expected during 2008-09.

Exemption for transfers of gaming machine entitlements

Transfers of gaming machine entitlements will be exempt from stamp duty once the relevant legislative amendments are made, expected during 2008-09.

Phasing out of TAB wagering tax

The South Australian TAB wagering tax on racing will be phased out over the next few years with the tax to be abolished from 1 July 2012.

For further information, please contact your usual PricewaterhouseCoopers adviser, or:

Barry Diamond, Partner
Phone: +61 3 8603 1118
barry.diamond@au.pwc.com

Angela Melick, Partner
Phone: +61 2 8266 7234
angela.melick@au.pwc.com