State Tax Reform

The Budget 2015 reforms to State taxes make corporate reconstructions easier with effect from 18 June 2015.

A new Part 4AA (Corporate Group Exemptions) is to be inserted into the Stamp Duties Act. These provisions replace the old ex gratia system for stamp duty relief on corporate reconstructions.

The new Part defines a corporation to include companies and unit trusts and a corporate group as essentially two or more corporations where the parent corporation (A) holds a 90% or more direct or indirect interest in the other corporation(s) (defined to be a subsidiary). To qualify, it is necessary that corporation (A) is entitled (whether directly or indirectly) to cast or control the casting of 90% or more of the maximum number of votes at a general meeting of the subsidiary, corporation (B). Without this condition being satisfied, then (B) is not a subsidiary of (A) and the corporations do not form a corporate group.

The new Part applies to a transaction involving a conveyance of property or an agreement to convey property from a member of a corporate group to one or more other members of the corporate group. The new Part also applies to duty arising under the landholder provisions in Part 4 of the Stamp Duties Act, which impose duty on a transfer of a 50% or more interest in a company or unit trust that holds land or an interest in land in South Australia with a value of $1M or more. In this situation, what is transferred is shares or units in a corporation within the corporate group, rather than an interest in the land itself.

The Commissioner must grant the exemption if:

1. the corporate group’s interest in the property the subject of the transaction is not diminished as a result of the transaction; and
2. the purpose, or one of the purposes, of the transaction:
   1. is to change the structure of the group; or
   2. is to change the holding of assets within the group; and
   3. the transaction does not result in property of the group being held by the recipient corporation as trustee of a discretionary trust; and
   4. the transaction is not otherwise part of a tax avoidance scheme within the meaning of Part 6A of the Taxation Administration Act.

Application for exemption can be made at any time before or within one year after the completion of the transaction. However, it is necessary to make full and complete disclosure of all relevant documents including, where the application is in respect of a proposed transaction, draft documents intended to effect, acknowledge, evidence or record the transaction, and other evidence requested by the Commissioner regarding the transaction. This evidence may be required to be verified by statutory declaration.

In granting an exemption in respect of a proposed transaction, it will be a condition of the exemption that the applicant will, within 2 months of the transaction occurring, advise the Commissioner if the actual transaction, or any circumstances relating to it, differs materially from the proposed transaction or any circumstances of the proposed transaction, or if information relevant to the transaction, or any circumstances relating to the transaction, differs materially from information specified in the application. If the applicant fails to notify the Commissioner of anything as required by this condition, the Commissioner may revoke the exemption.

The Commissioner may also revoke an exemption at any time if:

1. he ceases to be satisfied that the transaction qualifies for the exemption; or
2. in the case of an exemption granted in respect of a proposed transaction, he becomes aware (presumably other than by way of notification by the applicant in compliance with the condition - however this is not clear from the draft legislation) that the documents that effected the transaction differed in a material particular from the draft documents submitted with the application for exemption; or
3. he becomes aware that the applicant provided false or misleading information, or failed to provide relevant information, in support of the application.

If the exemption is revoked, then duty is payable on the transaction (and the liability assessed in relation to the circumstances applying at the date of the transaction) as if the transaction had not been exempt. The time of payment of duty is taken to be 2 months from the date of the revocation. However, the Commissioner has an unfettered discretion to impose penalty tax and interest as if the time for payment of the duty was 2 months from the date of the transaction itself. If additional duty, interest and penalty tax becomes due, then the members of the corporate group which were parties to the transaction are jointly and severally liable for these amounts.

We note that the Bill inserting the provisions has not yet been passed by the Legislative Council. A number of technical issues have been raised in respect of the draft legislation which we expect will result in amendments to the Bill before it is passed. However, we do not expect this to impact on the substantive effect of the legislation. Until the Bill is passed, the Commissioner is assessing applications for exemption as if the draft legislation contained in the Bill had been enacted.

The Tax and Commercial Teams at DW Fox Tucker can assist in advising on whether the new corporate group exemption rules will be available to any transaction entered into, or proposed to be entered into, after 18 June 2015.