Tipping the balance: 3 states float duty exemption for trust restructure, accountants call for unity

This month, the NSW and Victorian governments have considered stamp duty exemptions for discretionary trusts in a campaign big, efforts which the profession says should be consolidated across all seven states with greater focus on the restructure duty burden.

The NSW government proposed a waiver of stamp duty for discretionary trusts entering the EET regime in mid-October; shortly after, on 27 October, the Victorian government came in with its three-year stamp duty moratorium for businesses restructuring out of discretionary trusts.

This follows the Western Australian government in May considering stamp duty relief “if required”.

While the three states look at solutions to tackle the restructuring impost from stamp duty, there is yet to be a consolidated approach between the nation’s seven states, which Grant Thornton national head of technical tax David Montani (pictured, left) told Accounting Times will continue to bring about issues.

“A more unified approach would give growing businesses greater certainty and make it easier for them to choose the right structure for their future,” Montani said.

“Without a consistent approach, a business's stamp duty exposure will continue to depend largely on where it's located.

“Every jurisdiction imposes duty on land transfers, some offer only limited exceptions, and WA and Queensland also apply duty to business assets such as goodwill and equipment.”

While the three states have spoken out on the potential paths they could take, CPA Australia tax lead, Jenny Wong, said they have given three different answers.

“The Commonwealth’s assurance hasn’t held up,” Wong (pictured, right) told Accounting Times.

“Governments need to settle this before anyone has to make an election under the new minimum tax rules on discretionary trusts.”

CPA Australia has asked all seven states about the stamp duty impacts on discretionary trust restructures and said that the response that they got was not concrete.

“So far we’ve had three answers: yes, probably, and it depends. That isn’t certainty,” Wong said.

“The same family business could make the same election, on the same form, yet face three different stamp duty outcomes depending on which side of the state border it sits.”

Despite the promising moves, Montani noted that the relief that NSW proposed only applied to trusts choosing to enter the Excluded Election Trust (EET) regime.

“However, the relief announced applies only to trusts opting into the EET regime, where stamp duty risk is already quite limited, so its practical benefit is likely to be modest,” he said.

As opposed to receiving this modest benefit, Montani said that relief should be applied to dutiable assets moving out of a discretionary trust.

“The bigger cost for small businesses and private groups comes when they move dutiable assets out of a discretionary trust into another structure, and that's where relief would make the most difference,” Montani said.

“Federal policy is encouraging people to move away from trusts, while state stamp duty can make that move costly. Extending relief to restructures out of trusts would help close that gap.”

New South Wales

On 15 October, the NSW Minns Labor government committed to a stamp duty exemption for discretionary trusts that make a transitional EET election, contingent on its re-election.

In what the state government called an “Australian-first state-level rollover relief scheme”, it noted that it worked with the federal treasurer to make NSW the “first state to give its small businesses certainty with this practical solution,” NSW treasurer Daniel Mookhey said.

While the proposal provides the clearest answer on EET, Wong said that the re-election-dependent proposal does not mention the duty consequences of restructuring.

“The next step is to put it into law, with a start date, before anyone has to make the election,” Wong said.

“A promise to consult after federal legislation passes is a good start. It isn’t yet certainty for the business owner who has to decide.”

Western Australia

According to media reports, two weeks ago the Western Australian government considered narrow stamp duty relief for discretionary trusts.

The Australian Chamber of Commerce and Industry noted that the Western Australian Government signalled it may follow the same path as NSW, without confirmation on its final decision.

On 21 May, Western Australia minister of finance David Michael said in response to questions about stamp duty relief for discretionary trusts navigating restructuring: “Obviously, any outcomes from that will be considered as part of future budget processes if required.”

Wong said that the state’s answer is encouraging.

“WA has clearly done the work, and its answer is encouraging. But it’s a ‘yes, if’, and the ‘if’ depends on the wording of a form that hasn’t been written yet,” Wong said.

Victoria

In contrast with the other states, which have just addressed the EET, Wong said the Victorian government has done the most in terms of addressing restructuring.

In Victorian Labor’s announcement on 27 October, the Carroll Labor Government said that upon re-election, it will “give Victorian businesses a three-year stamp duty moratorium to provide certainty”.

The effect of this moratorium is the waiving of stamp duty for businesses transitioning from discretionary trusts.

“Eligibility will be based on those entities that qualify for the Commonwealth’s rollover relief,” it added.

“Victoria has done the most of any state so far on restructuring. A three-year stamp duty moratorium for trusts that restructure deals with the biggest cost of these changes, and we welcome it. But only if re-elected,” Wong said.

“Linking eligibility to the Commonwealth’s rollover relief is sensible. Business owners should face one test, not two.”

These potential exemptions from the three states arise as small businesses battle uncertainty while waiting for the minimum tax on discretionary trust law to pass; where they will face three options: accept the minimum tax, restructure, or make an EET election.

Accounting Times reached out to the WA government for comment.