You act for Sally and Steven who live in regional NSW and run a successful tyre shop. You have met with them many times over the years for business related matters and each time remind them that they are yet to do their wills.
After taking some long service leave, you see that Sally and Steven are meeting with you on your first day back to finally do their wills. Given they only have one child you think to yourself, well this will be an easy first day back.
They instruct you to prepare their wills, which as you suspected, were very straight forward. They also tell you that their daughter Jessica pretty much runs the business now and that she had recently been appointed as a director of the trading company. “Have you thought about handing the business over now” you ask, to which they reply “funny you ask that, we are actually catching up with our accountant to review our financial situation after this meeting”.
Wanting to be very efficient on your first day back you prepare the wills and Sally and Steven come back later that day to sign them. They also instruct you to prepare a share transfer because their accountant said they could walk away from the business today and be ok. They would also like to see the business grow and are confident that Jessica will thrive once they get out of her way. You ask about capital gains tax and they advise the accountant said it was minimal. They tell you that the building the tyre shop operates out of is pre capital gains tax and owned by them personally. They would have liked to transfer that to Jesscia too but didn’t want the stamp duty cost.
As it happens, it’s Jessica’s 40th birthday tomorrow and Sally and Steven say it would be an awesome surprise if they could give her a signed share transfer. You do a quick ASIC search and prepare the transfer which Sally and Steven sign and take with them.
The next day you find Sally and Steven’s safe custody folder on your desk which you had asked for yesterday and obviously got a little too late. You look anyway and find a very old title deed in the name of the trading company. You do a quick title search; it confirms the tyre shop building is in the name of the company! You leave a message with the accountant who calls back and says “yes of course it is, I’ll send you a copy of the balance sheet”. He also tells you that Jessica sent him the signed share transfer this morning which was already being registered with ASIC. The accountant picks up on the panic in your voice as you ask what the value of the building is and says “what are you worried about, it’s pre CGT and there is no stamp duty”.
The First Sting
Of course, the accountant is correct, stamp duty on shares was abolished in 2016 but then the panic sets in again. “But what about landholder duty”? You explain that landholder duty in NSW applies when shares in a private company hold land valued at more than $2million can attract ad valorem duty on transferring the shares on the same basis as a transfer of the underlying land ownership. You do a quick Valuer General search which shows the property valued at $1.4million, surprisingly high for a regional town, but phew.
The Second Sting
Something is still nagging at you. At first you try your best to ignore it but then you remember a training session you did shortly before going on leave.
After a few more moments, it dawns on you and you ask one of your colleagues if, for the purposes of landholder duty, the value is taken from the VG.
Your colleague, without giving it a second thought says “no, it’s definitely market value”. She shows you s23 of the Duties Act which describes ‘unencumbered value’ as follows:
23 What is the “unencumbered value” of dutiable property?
- The “unencumbered value” of dutiable property is the value of the property determined without regard to any encumbrance to which the property is subject.
- The “unencumbered value” of the goodwill of a business is taken to include the value of any restraint of trade arrangement entered into by the vendor in order to protect the value of the goodwill.
- If, before land is transferred to a transferee, the transferee has made improvements to the land, the unencumbered value of the land is to be determined as if those improvements had not been made.
- Subsection (3) does not apply to improvements made to the land for or on behalf of the transferee by the transferor.
“Remember”, your colleagues tells you, “it previously was ‘registered land value’ which was the value of land kept by the Valuer General”. You vaguely remember this was amended around the same time as the foreign person provisions for discretionary trusts came in (amongst other things).
And of course section 146(1) defines landholder:
146 Meaning of ‘landholder”
- For the purposes of this Chapter, a “landholder” is a unit trust scheme, a private company, or a listed company, that has land holdings in New South Wales with an unencumbered value of $2,000,000 or more.
- A landholder is a “private landholder” if the landholder is a private unit trust scheme or private company.
- A landholder is a “public landholder” if the landholder is a public unit trust scheme or listed company.
All sections in Chapter 4 refer to ‘unencumbered value’ – there is no reference to ‘registered land value’.
Your only hope now is that the valuation comes back below $2million but unlikely given the VG value!
- Always talk to the accountant and ask for a balance sheet when there is a company involved
- Stamp duty on shares was abolished some time ago, but don’t forget about landholder duty
Author: Michaela Schmidt