‘Piggyback’ stamp duty rollover design for WA, QLD small businesses

Grant Thornton national head of technical tax David Montani (pictured) told Accounting Times that the change is going to put “business owners in an impossible position", where they will either need to transfer a business into a new structure with the accompanying stamp duty impost, or stay with their existing structure and suffer a low profit reinvestment rate.

In August 2016, Montani put forward a transfer duty rollover policy design to the Treasurer of Western Australia. Currently, Western Australia and Queensland are the only states in which transfer duty is payable on the transfer of business assets.

Montani also noted that all state and territory jurisdictions impose stamp duty on the transfer of residential land, and all jurisdictions except South Australia impose it on the transfer of commercial property, saying that many people across the country who hold real property through a trust will face a similar dilemma.

In his policy design submission, A positive initiative for business growth and development, Montani said: “... the transfer duty impost on these business restructures is prohibitive, resulting in businesses remaining with their existing trust structure”.

“This hinders business development, restricts investment, and condemns Western Australian businesses to a punitive income tax treatment,” the paper continued.

Explaining his measure to this brand, Montani explained that the implementation of his proposed rollover “piggybacks” onto the CGT rollover.

“What I showed [in the paper] is that you can have a rollover for stamp duty … Let a business [or real property] go from a trust to a company [and] don't impose stamp duty ... and [the government] will actually collect … stamp duty in future when that business [or property] is sold just like [they would have normally]. The point of that is that it costs [the government] virtually no stamp duty revenue,” Montani said.

“The proposed exemption from transfer duty set out in this submission will allow Western Australian business owners to change their legal structure from a trust to a company, thus alleviating them of the above difficulties and allowing them to take their business to the next phase in their business lifecycle. This is ever more important during our continuing difficult economic times,” Montani wrote in his submission.

Speaking to Accounting Times, Montani said: “There will be an increased desire to transfer businesses and assets from their existing home in a trust to a new legal entity, most typically a company. That would normally trigger a capital gain based on the market value of the assets, but there are roll-overs to alleviate that, and they will be expanded.”

Montani said that his policy design had been reviewed by The Tax Institute before being submitted to the WA Treasurer’s office and was also reviewed by State Revenue, which found no technical faults.

“[The design] was efficient because it piggybacked off the CGT roll-over under federal tax law (and that has been done before, including in NSW). That is, if you met the conditions for the CGT roll-over, you qualified for the stamp duty roll-over,” Montani told Accounting Times.

“This alleviated the need to recreate all the ring-fencing and integrity rules – they were already there in the CGT roll-over rules.”

In an email in response to Montani’s design, WA Deputy Premier chief of staff Robbie Williamson wrote: “The State Government is aware that the proposed reforms may affect Western Australian businesses seeking to restructure.”

“However, the Government is not currently considering changes to Western Australia’s transfer duty arrangements in response to the proposed reforms.”