State changes two key parts of tax laws

THE State Government has responded to industry criticism by modifying two key aspects of its business tax reforms.

The changes are good news for property developers and business brokers, which will benefit from extended payment periods for stamp duty.

The Government has also softened its stance on the tax treatment of options to ensure they can continue to be used for succession planning purposes or to obtain finance.

The changes have been welcomed by business groups, even though the Government did not go as far as some groups had been hoping.

Commissioner of State Revenue Bill Sullivan will be able to extend the time for payment of stamp duty from two months to four months in cases where conditional contracts may result in a lengthy settlement period.

Specific conditions that would justify an extension include obtaining a licence to trade or granting a franchise.

An extension may also be granted where a sale is subject to the sale of another property or the issue of a title.

A further exception was made for ‘off the plan’ property contracts, where the period for payment of duty would generally be 12 months after the contract was signed.

These changes follow the Government’s original decision to effectively halve the lodgement and payment period for stamp duty.

The period of time for lodging paperwork was cut from three months to two months while the payment period was cut from three months to one month.

A range of business groups, including the Chamber of Commerce and Industry and the Real Estate Institute of WA said the original changes did not reflect the reality of many commercial transactions.

REIWA public affairs director Lino Iacomella welcomed this week’s announcement.

“The outcome has been very good,” he said.

“They acknowledge the significant hardship that would have been caused by the reduction of time for payment of duty.”

CCIWA deputy chief executive Ross McLean also welcomed the changes.

“We’re satisfied that a genuine attempt has been made to accommodate those needs,” he said.

“We think what has happened is fairly logical.”

The Government has also amended its tax reform legislation to recognise the legitimate role put and call options have in business succession planning and in obtaining finance.

Under current legislation before Parliament, simultaneous put and call options will be deemed to be a sale agreement and will therefore be subject to duty.

This change, estimated to yield an additional $2.4 million in revenue over four years, was designed to crack down on property syndicates that used simultaneous put and call options to avoid or defer payment of stamp duty.

Amendments to the proposed legislation will exempt options used by business partners for the purpose of providing continuity in the event of death, retirement, disablement or bankruptcy.

The amendments will also exempt options used for the purpose of “obtaining finance or making other financial arrangements”.

The changes still mean that simultaneous put and call options are subject to stamp duty in many circumstances.

They are commonly used in the property industry to bind parties as if a contract for sale had been made pending certain conditions, such as successfully rezoning the property or achieving adequate presales. 

The arrangement has allowed developers and purchasers of off the plan property to delay payment of stamp duty while waiting for conditions to be met.

While land development has attracted a discretionary six month delay on duty payment, Multiplex director Martin Steens said the delay did not yield any benefits for larger and more complex developments that might require scheme amendments or rezoning and took much longer than six months.

He said obtaining a development application approval on the Raffles project took more than 12 months and that the duty charge would be another impost at the front end of a project.

“It is not a matter of not wanting to pay, it is a matter of certainty in regards to receiving approvals and a level of presales,” Mr Steens said.

Pindan Property Group development manager Nick Allingame said development projects would still go ahead, however, charging duty at the front end of a put and call option would hinder presales and in turn affect the timing of development projects.

Investors in off the plan property often used the practice to extend the contractual agreement to when property titles were issued or practical completion of a project.

Given that larger residential development projects took around two years till completion this gave investors a significant amount of time to organise finances.

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