Page 3543 - Week 12 - Tuesday, 20 November 2007
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The background comes from the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, the IGA, which required all states and territories to undertake a review of their respective taxes. As a consequence of the ACT review, the Assembly passed legislation last year to amend the Duties Act so that duty on commercial lease instruments under chapter 5 of the act will cease on leases commenced on or after 1 July 2009.
The treatment of duty on long-term leases is assessed under chapter 2 of the Duties Act, and this duty has not been abolished. Long-term leases are charged at conveyance duty rates because they effectively provide control of the land and equate to a de facto transfer of the land. As defined in the Duties Act, a long-term lease is one for a term of longer than 30 years, and the time period includes any options for renewal.
This bill broadens the definition of a long-term lease to include certain lease structures that may be manipulated to disguise what is in effect a long-term lease. The bill clarifies that a long-term lease may be engineered by means other than the use of options. To try to prevent parties acting together to defeat the legislation, the bill also ensures that the grant, holding or surrender of a lease by a person includes any such arrangements undertaken by an associated person.
One method of manipulation to avoid conveyance duty is to surrender an existing lease and take out a new lease over substantially the same property. Another is to vary the terms of an existing lease to extend the original term beyond 30 years. The extended time period can be achieved by one or more such surrenders or variations. These long-term leases will now be assessed at the conveyance rate of duty. In fairness to the lessor, and to ensure there is no double duty, the lessor will be entitled to a credit of any duty already paid under chapter 5 of the Duties Act prior to its abolition.
If a lease is surrendered and another lease is granted which creates, by definition, a long-term lease, it is possible that the land being leased is not identical to that of the surrendered lease. It may be that the new lease is for more or less land than the original lease. When calculating conveyance duty on the long-term lease, the unencumbered value of the dutiable property will be that portion of the land that is held for longer than 30 years. Any land that is part of the long-term lease but will be held for 30 years or less will not be included in the unencumbered value for duty purposes.
The transitional provisions have already been incorporated into the act to ensure consistent and equal treatment of lessors both before and after the abolition of the duty. The bill includes amendments to strengthen the transitional provisions for the expiry of chapter 5.
Under the act, duty continues to be payable on an arrangement that is made prior to 1 July 2009 that has an execution date purposely delayed until after the abolition date. The bill clarifies the provision to ensure that an option for renewal that is similarly delayed with the main purpose of avoiding duty is also included.
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