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The first Labor budget in New South Wales since 2010, inflation remains a key economic challenge for the state.
The budget will deliver a deficit of $7.8b in 2023-24, and is projected to improve year on year with surpluses delivered in every year thereafter, with an $844m surplus in 2024-25, reaching $1.5b by 2026-27.
Gross debt hit $132b in 2023-24, with a projection of $173.3b by 2026, initially estimated earlier this year to sit at $188.2b.
However, New South Wales’ debt levels are set to grow to $187.5b by 2025-26, with the interest on the debt forecast to increase to $7b due to higher borrowings and increasing global interest rates.
In addition, the state’s unemployment rate sits at 3.6 per cent, and is expected to peak at 4.75 per cent in early 2025. Mr Mookhey suggested a slowing economy, with a modest slowdown in economic growth. However, strong population growth and high overseas migration will support consumer spending.
The State Budget delivers some significant changes to stamp duty and land tax reflected in the Treasury and Revenue Legislation Amendment Bill 2023 (Amendment Bill) introduced by Treasurer Daniel Mookhey. The changes certainly reflect the Government’s broader objective of returning the State to a surplus in the coming years.
The corporate reconstruction exemption provisions of the Duties Act 1997 provide a full exemption from duty on transactions between members of a corporate group that would otherwise be chargeable with duty. In what is set to be a substantial change, the Amendment Bill removes the corporate reconstruction and corporate consolidation exemption and instead provides a 90 per cent concession on eligible transactions. Apart from the 10 per cent cost of duty and increased compliance burden, it is expected that taxpayers will be required to procure independent valuations to substantiate any duty lodgments once the concession is implemented. Accordingly, this change could put a stop to, or at least considerably hinder, corporate restructures in New South Wales.
The removal of the exemption brings New South Wales in line with Victoria which also replaced its full exemption with a 90 per cent concession in its 2019-20 State Budget. The New South Wales change comes into effect for agreements executed (and transactions entered into) on or after 1 February 2024 with arrangements entered into before 19 September 2023 grandfathered provided an application for an exemption is made before 1 April 2024.
In what appears to be another change inspired by current Victorian law, the landholder acquisition threshold for “private unit trust schemes” has been reduced from 50 per cent to 20 per cent. Under the proposed new legislation, a public unit trust scheme means a unit trust scheme other than a public unit trust scheme (e.g listed trust or widely held trust) or a registered unit trust scheme. A new registration scheme is also proposed for the registration of “wholesale unit trust schemes” which will continue to receive the benefit of the 50 per cent acquisition threshold. Wholesale unit trust schemes must meet a number of criteria, including that not less than 80 per cent of the units are held by qualified investors.
We expect significantly more trust acquisitions to be subject to landholder duty as a result. The change applies to relevant acquisitions occurring on or after 1 February 2024 unless arrangements were entered into before 19 September 2023.
When assessing whether an entity is a landholder in New South Wales (broadly where an entity has an interest in land with a combined value of $2m or more), the interests held by a “linked entity” of the landholder is also taken into account. The Amendment Bill proposes to reduce the linked entity tracing threshold from 50 per cent to 20 per cent for all entities.
Fixed or nominal duty is charged in respect of various transactions throughout the Duties Act 1997 and currently range from $10 - $500. These charges have been unchanged since 1 January 2009. From 1 February 2024, these amounts will see a modest increase to $20 - $750.
Certain zero and low emissions vehicles currently enjoy an exemption from motor vehicle registration duty. The exemption is proposed to be abolished for vehicles registered for the first time on or after 1 January 2024.
Land may currently be exempt from land tax where only one of multiple owners occupies the property as a principal place of residence even in cases where they own only a small proportion of the property. The Amendment Act proposes to restrict the exemption to persons who occupy the property as their principal place of residence and own at least a 25 per cent interest in the property. The minimum 25 per cent ownership requirement will come into effect from the 2026 land tax year.
Grant Thornton will be following the announcements released as part of the State Budget closely over the coming weeks and months. Please contact a member of the Grant Thornton team if you have any queries or would like to discuss.
