Why WA needs a transfer duty roll-over: David Montani

Grant Thornton national head of technical tax in private enterprise, David Montani (pictured), has cautioned the Western Australian (WA) government on the severe consequences of ignoring the need for transfer duty roll-over in light of the federal government’s tax policy for trusts.

In a letter to WA Deputy Premier, treasurer, and minister for transport, sport and recreation Rita Saffioti, Montani urged the state government to introduce transfer duty roll-over to benefit small businesses. In his letter, Montani stressed that WA small businesses that use corporate beneficiaries through discretionary trusts to reinvest their profits into their businesses will be significantly impacted by the proposed 30 per cent tax on trusts.

At a press conference on 22 May, Saffiot told reporters that the potential stamp duty that businesses would be facing as a result are matters for the federal government, stating that the WA government is not currently looking at changing any of their policies.

Montani warned that trust with corporate beneficiary structure, in particular, will no longer be viable from 1 July 2028 due to double taxation or the reduced cents-in-the-dollar profit reinvestment rate. As a result, Montani said that small businesses will be forced to transfer their businesses out of a discretionary trust and continue operating through a company, triggering the capital gains tax (CGT) liability based on the value of the business and incurring the transfer duty cost, despite it being an internal restructure with no change in underlying owners.

“The CGT rules have always provided [a] tightly controlled exemption in this situation, the express policy intent of which is so that CGT does not inhibit desirable business restructures,” he said.

Montani also noted that there has always been an imposition of transfer duty on the value of the business transferred.

“This is dead cost that usually makes this kind of restructure unviable. For this reason, the vast majority of small businesses stay with their discretionary trust structure when, in fact, they would prefer to move to a company. I point out here that this means no transfer duty is collected.”

“It would be unconscionable to allow WA businesses to face this future … Many small businesses in jurisdictions that no longer impose transfer duty on transfers of business non-real property have moved from their trust to a company.”

“The new 30 per cent tax on trusts will now take the negative consequences of staying with the trust structure to an extreme. The clear purpose is to reduce the use of trusts. However, businesses that would otherwise want to switch to the company hit the transfer-duty brick wall.”

Montani stressed that a transfer duty roll-over is needed. “Not doing this will condemn thousands of small businesses in WA to crippling costs … CGT laws enable transferring business from a discretionary trust to a company, where there is no change in the underlying owners, and it results ultimately in no loss of CGT revenue.”

“Transfer duty roll-over is needed more than ever for the specific scenario of transferring business from [a] discretionary trust to a company. This would align [WA] tax policy with [federal] counterparts, would cost virtually no transfer duty revenue, and would demonstrate [the understanding of] the WA business community’s need for this, and are proactively responding,” he concluded.