A REVIEW of planned business tax changes has concluded that Western Australia’s stamp duty regime will be far more onerous than that of any other State.
Deloitte Touche Tohmatsu senior tax manager Peter Katz said the WA Government’s latest tax bill went further than envisaged in its tax white paper, released last June.
Some of the provisions of the Business Review (Assessment) Bill 2003 were designed as anti-avoidance measures but in practice would have a wider impact, Mr Katz said.
“The business tax changes include many positive measures but what is brought into the tax base is much wider than in any other State,” Mr Katz said.
The package of changes, developed in consultation with industry, was designed to simplify the State tax system. It includes the abolition of several taxes.
Mr Katz said leasehold businesses would be hit particularly hard by the new rules, which apply duty to chattels (ie moveable plant and equipment) transferred with any type of dutiable property.
Previously duty only applied to chattels transferred with land.
Mr Katz said South Australia was the only other State to apply stamp duty to the transfer of chattels in the absence of a simultaneous transfer of land.
The new stamp duty regime in WA would capture virtually all business assets, including goodwill, intellectual property and information (such as databases), which in the past had largely been exempt or not dutiable.
“The inclusion of a business assets definition coupled with the fact that WA levies duty on ‘property’, as opposed to ‘dutiable property’ in other States, means that a far greater amount of assets are brought within the WA stamp duty fold,” Mr Katz said.
He said business succession planning would be adversely affected by the decision to deem put-call option agreements as sale agreements, and therefore subject to duty.
WA is the only State to adopt this approach, which is designed to crack down on property syndicates using options to delay paying stamp duty.
“As the bill is currently drafted, all put-call options are caught, even those used for genuine commercial purposes such as business succession planning,” Mr Katz said.
Another area where WA was more onerous than all other States (except the ACT) was the reduction in the “land rich” threshold from 80 per cent to 60 per cent.
The original intent of the “land rich” rules was to stop investors putting land into a company in order to qualify for lower duty.
“It was an anti-avoidance provision when first introduced but they have changed it considerably,” Mr Katz said.
“At 60 per cent, you couldn’t say the investor is always simply going after the land.”
Mr Katz said private unit trusts received particularly harsh treatment in WA.
In other States they were treated the same as companies, so duty would apply at a low rate and only to the net value of the trust.
In WA, they are dealt with on a ‘look through’ basis, so that duty applied at the conveyance rate of 6.3 per cent and to the gross value of the assets being sold.
In addition, other States grant relief so that corporate groups that include unit trusts can restructure without having to pay stamp duty in respect of the trusts.
“WA remains one of only two States that does not give any corporate reorganisation relief to unit trusts,” Mr Katz said.
“In my experience, I’ve seen corporate groups continue with an inefficient business structure because of the duty they would otherwise have to pay.”
An added complication is the post association test, which remains at five years in WA compared to one year in New South Wales and Victoria (only if land is involved) and three years in other States. Under this test corporate groups that obtain relief for a reorganisation of related companies but subsequently sell one of the companies will be subject to a clawback of duty and penalties.
“That’s very difficult because businesses can’t crystal ball five years ahead,” Mr Katz said.
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