NSW State Budget 2023-24

New South Wales Treasurer Daniel Mookhey has handed down a budget focussed on combatting the cost of living, improving social and transport infrastructure, as well as disaster preparation and relief.

Funding for these initiatives is set to come in part from the amendment to key tax measures outlined below.

What is most evident in this budget is a strong response to counteract the Government’s current financial state in a high interest rate environment.

Land tax principal place of residence exemption

The Government has announced significant changes to the principal place of residence exemption. Under the current regime, anyone who owns as little as one per cent of a property that is used, and occupied as a principal place of residence, can claim a land tax exemption. The new proposed measure will require a minimum of a 25 per cent interest in the property for owners to be eligible. This amendment is intended to close a loophole in existing legislation and reduce instances of tax avoidance.

A transitional arrangement will ensure that those who already claim the principal place of residence exemption but own less than a 25% interest can continue to claim the exemption for the 2024 and 2025 land tax years, with the minimum ownership requirement of 25% to apply from the 2026 land tax year for those owners.

BDO Comment

We encourage anyone currently claiming the land tax principal place of residence exemption to revisit the existing exemption, and your ownership structure to confirm whether this is still available to you.

Changes to landholder duty regime

Landholder duty is imposed on any acquisition of a significant interest in a landholder (being an entity that holds land in NSW with an unencumbered value of $2million or more). Currently, a significant interest is taken to be an interest 50% or more in the landholder. Under the new provisions, the definition of a significant interest would be reduced from 50% to 20% in respect of those landholders that are private unit trusts (that are not wholesale unit trusts).

In addition, the threshold for tracing through linked entities will be changed from 50% to 20%.

BDO Comment

As the duty payment threshold for private unit trusts has been lowered, family groups, high net-worth groups and other clients utilising this type of corporate vehicle will need to carefully examine any future changes to unit holdings to consider the impact of any landholder duty payable. We believe this change could have a significant impact on investor decisions, and the business structures investors use to hold land in the future.

Corporate reconstruction and consolidation exemptions replaced by concessional duty rate

Currently, certain transfers of assets between members of corporate groups are exempt from transfer duty. In addition, a corporate consolidation exemption is also currently available in respect of certain interpositions of a corporation between another corporation and its holders.

The Budget announced an amendment to the Duties Act 1997 for transactions occurring on or after 1 February 2024, replacing the corporate reconstruction and corporate consolidation exemptions with a concessional duty rate of 10 per cent of the duty that would otherwise be payable. This change brings New South Wales in line with Victoria’s treatment of corporate reconstruction transactions.

A transitional arrangement will provide an exception for transactions that arise from an agreement entered into before the legislation was introduced to Parliament and for which an exemption application was lodged on or before 1 April 2024 in which case the full exemption will still apply.

BDO Comment

As this change effectively reduces the exemption from 100 per cent to 90 per cent, a payment equal to 10 per cent of the transfer duty otherwise payable will now need to be factored into the cost of undertaking any restructures of corporate groups with New South Wales dutiable property. This could be a significant cost and prevent genuine restructures from being undertaken. These changes may also introduce other additional costs to corporate reconstruction transactions where the value of dutiable property needs to be substantiated for the purposes of determining the amount of duty payable.

Investing in compliance

The Government is allocating additional investments to the operation of Revenue NSW’s compliance systems. This investment is anticipated to boost payroll tax revenue by $337.0 million, land tax revenue by $225.5 million, and transfer duty revenue by $87.5 million across a four-year period until 2026-27.

BDO Comment

BDO welcomes the increase in compliance expenditure to ensure taxpayers are correctly complying with the relevant laws and that they understand the application of certain laws to their business. Taxpayers need to be more vigilant to ensure they are up to date with any changes to their tax obligations given Revenue NSW is likely to be more proactive and step up reviewing activity.

Other announced changes

Coal royalties to increase

From July 1 2024, the Government will introduce tax reform on coal royalties, increasing the rate mining companies must pay on materials they extract by 2.6 per cent, which is set to raise over $2.7 billion over a four-year period.

Electric vehicle (EV) rebate removed

The EV stamp duty exemption of up to $3,000 which currently applies to new or used full battery electric (BEVs) and hydrogen fuel cell electric vehicles (FCEVs) will now end on 1 January 2024. EV owners will also be required to pay the road user charge (RUC) once it commences, either from 1 July 2027 or when EV sales reach 30 per cent of all new car sales.

Toll relief

The Government is introducing a toll cap in 2024, to be rolled out over a two-year period. Toll reform includes a $60 weekly cap for private motorists and a 33 per cent reduction on the current truck toll multiplier on the M5 East and M8.

Fixed and nominal duty amounts

The amounts payable where fixed or nominal duty is applicable will increase from 1 February 2024 as follows:

$10 increased to $20
$50 increased to $100 (except Managed Investment Schemes which is increased to $500)
$500 increased to $750

If you have any questions about how the announcement might affect you, please contact your local BDO adviser for further guidance.