Birchstone Brief for the week ended 26 May 2023

ATO Updates

State Taxes

Vic: 2023-24 Budget released

The Victorian Treasurer handed down the Victorian 2023-24 Budget on 23 May 2023. The key tax-related measures were as follows:

• As part of Victoria’s ‘COVID Debt Repayment Plan’ announced in the Budget, a temporary and targeted levy will be introduced for 10 years until 30 June 2033. It will consist of a payroll component and a landholding component.
• The payroll component will see large businesses pay more Victorian payroll tax. From 1 July 2023, businesses with a national annual payroll of more than $10 million will pay an additional 0.5% on Victorian wages above the threshold, and those with a national annual payroll of more than $100 million will pay a further 0.5%. Existing payroll tax exemptions will continue to apply.
• The landholdings component will see the land tax schedule amended from 1 January 2024 to reduce the tax-free threshold for landholdings from $300,000 to $50,000. General taxpayers with landholdings between $50,000 and $100,000 will be subject to a temporary fixed charge of $500, and those with landholdings between $100,000 and $300,000 will be charged $975. General taxpayers with landholdings worth more than $300,000 (and trust taxpayers with landholdings worth more than $250,000) will be charged an additional $975 plus 0.1% of their landholdings above $300,000. Existing land tax exemptions will continue to apply.
• Starting 1 July 2024, transfers of commercial and industrial properties will transition from the transfer duty system to an annual  property tax charged at 1% of the unimproved value of the transferred land. A transitional system will apply to the first transfer of a commercial property after 1 July 2024, whereby the purchaser will be able to choose to either pay the traditional transfer duty liability up front or over 10 years with interest.
• The payroll tax-free threshold will increase from $700,000 to $900,000 on 1 July 2024 and then again to $1 million from 1 July 2025.
• Further, from 1 July 2024, the tax-free amount will be reduced for each dollar a business pays in wages above $3 million to phase out the benefits of the tax-free threshold for large businesses. Businesses with payrolls above $5 million will no longer benefit from the tax-free threshold.
• High-fee non-government schools will lose their payroll tax exemption from 1 July 2024.
• From 1 January 2024, the absentee owner surcharge rate will increase from 2% to 4% and the minimum threshold for non-trust absentee owners will reduce from $300,000 to $50,000. This measure will harmonise Victoria’s absentee owner surcharge regime with that of New South Wales.
• The Commissioner of State Revenue will be given discretion to extend the land tax exemption for principal places of residence under construction or renovation for up to an additional 2 years where construction takes additional time due to builder insolvency. This will only apply if the landowner is not entitled to another principal place of residence exemption.
• From 1 July 2023, the Special Disability Trust transfer duty deduction threshold will be increased to $1.5 million for principal place of residence transfers. Additionally, eligibility for the concession will be expanded to include situations where a home is transferred to an individual eligible to be a beneficiary of a Special Disability Trust, even if no trust has been established.
• From 1 January 2024, a new land tax exemption will be introduced for land used as the home of an individual eligible to be the beneficiary of a Special Disability Trust that is owned by an immediate family member, provided there is no rent payable.
• From 1 January 2024, land included in a conservation covenant with Trust for Nature will be exempt from land tax.
• From 1 July 2023, eligible Victorian charities will be exempted from the waste levy.
• Business insurance duties will be reduced by 1% per year, starting 1 July 2024.
• The wagering and betting tax rates will be harmonised with NSW.

TAS: 2023-24 Budget released

The Tasmanian Treasurer handed down the Tasmanian 2023-24 Budget on 23 May 2023. The key tax-related measures were as follows.

• Extending the eligible period for the first home buyer and pensioner downsizing duty concessions for a further 12 months to 30 June 2024.
• Extending the land tax exemptions for newly constructed dwellings made available for long-term rental and short-term accommodation converted to long-term rentals for 12 months to 30 June 2024.
• Extension of the vehicle licence duty waiver on the purchase of new electric and hydrogen fuel-cell vehicles to 31 December 2023, where the purchase contract was entered into prior to 25 May 2023.
• Extension of the payroll tax rebate scheme for business employing eligible apprentices, trainees and youth employees to 30 June 2024.

Cases

JMC Pty Ltd v FCT [2023] FCAFC 76 – Full Federal Court finds lecturer was engaged as contractor, not employee

The Full Federal Court has overturned the first instance decision of Wigney J of the Federal Court reported at [2022] FCA 750 (previously covered in the Birchstone Brief for the week ended 1 July 2022). Contrary to Wigney J, the Full Federal Court found that the lecturer was engaged by the appellant as an independent contractor and not an employee within either the ordinary meaning of that term or the extended definition in section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth). The result was that the appellant was not required to make superannuation guarantee contributions in respect of the lecturer.

The principal reasons for the Full Court’s decision were as follows.

• The right of the lecturer to subcontract or assign the performance of their teaching services, although subject to written consent from the appellant, was a real and substantial right inconsistent with an employment relationship.
• The requirement for the lecturer to include signed lesson plans with the invoices they gave to the appellant did not in itself lead to the conclusion they were an employee of the appellant. Rather, the requirements were consistent with the lecturer being an independent contractor and enabling the appellant to confirm the required content he was engaged to deliver was in fact delivered.   
• The fact that the lecturer charged for his services by rendering an invoice was not consistent with an employment relationship. Also, the appellant’s ability to deduct costs or withhold payment for various reasons favoured characterisation of the relationship as that of principal and independent contractor.
• Regarding section 12(3), the lecturer’s right to subcontract indicated that the contract was not ‘wholly or principally’ for his labour. Rather, it was a contract for the provision of teaching services.

Eshchenko v Commissioner of State Revenue [2023] QSC 100 – Majority interest in a landholder acquired from a related person not an excluded interest

The Supreme Court of Queensland has held that a 51% interest in a landholder that the taxpayer acquired from his father pursuant to a special resolution, after having already held a 49% interest in the relevant entity, was not an excluded interest within the meaning of section 179(6) of the Duties Act 2001 (Qld) and was therefore subject to landholder duty. In coming to this decision, the Court held that:

• the legislative intention apparent from the wording of section 179(6) was not to exclude interests acquired by the person at the time of the relevant acquisition, but to exclude those already held by the person or a related person which were aggregated with that acquired interest for the purposes of imposing landholder duty; and
• consequently, the 51% interest the taxpayer acquired from his father pursuant to the special resolution was not an excluded interest as defined.

Legislation

Land Tax Assessment Amendment (Build-to-Rent) Bill 2023 (WA) introduced

A Bill has been introduced into the WA Legislative Assembly which will, if enacted into law, amend the Land Tax Assessment Act 2002 (WA) to provide a 50% exemption from WA land tax for 20 consecutive assessment years for eligible build-to-rent developments.
To qualify for the exemption, a development must meet the following requirements:

• the land containing it must be owned by the same owners and managed by one entity;
• it must have been constructed or substantially renovated to provide at least 40 self-contained dwellings for residential tenancies;
• the dwellings in the development must be able to be lawfully occupied between 12 May 2022 and 30 June 2032;
• the dwellings must be available to rent for at least a 3-year term (although tenants can choose a shorter lease); and
• the dwellings’ availability cannot be restricted to certain classes of person unless necessary for public health or safety, if the dwellings are social housing, or in other prescribed circumstances.

A proportional exemption will be available where parts of a development are used for non-qualifying purposes. The exemption will also be retrospectively removed if a development ceases to qualify for the exemption within the first 15 years – with the effect that the owner(s) will be required to repay any previously exempt land tax.