Transfer Duty – Important Considerations

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Are you being taken advantage of with transfer duty?

If you are transferring ownership of assets, particularly as part of a business sale, transfer duty is an important consideration as the wrong decisions can have significant financial consequences.

Transfer duty varies based not only on the type of assets being transacted but also the State in which that transaction occurs.

What is transfer duty?

Transfer duty (formerly known as ‘stamp duty’) refers to the state-level tax charged for the registered transfer of property by the regulator – in Queensland the regulator is the Office of State Revenue (‘OSR’).

Key examples of transactions that attract transfer duty include the sale of:

  • dutiable property; or
  • business assets such as licenses used to operate a business, business name, franchise agreement or personal property.

Transfer duty can also be applicable to transactions involving intangible assets such as:

  • goodwill (the value of a business reputation amongst the public); or
  • intellectual property (such as patents, copyrights and trademarks).

Typically whenever business assets are being transacted, transfer duty will be applicable unless a concession or exemption applies under the Duties Act 2001 (Qld) (‘Act’), or your state legislation equivalent.

When does transfer duty apply?

Each Australian State has transfer duty provisions that share many similarities but there are also key distinctions that may require specialist advice to understand. This article focuses on the legislation in Queensland.

In Queensland, transfer duty is payable on the dutiable value of a dutiable transaction, which includes:

  • land in Queensland;
  • a transferable site area;
  • an existing right;
  • a Queensland business asset; and
  • a chattel in Queensland (property not attached to land).

What is a ‘Queensland business asset’?

According to the Act, a Queensland business asset is ‘a business asset of a Queensland business’. While this definition may seem circular, it can in fact be broken down into two (2) important components:

  • what is a business asset; and
  • what is a Queensland business?

Business assets

There are numerous forms of property that are considered ‘business assets’ within the meaning of the Act. A full list is available at:

http://www.austlii.edu.au/au/legis/qld/consol_act/da200193/s35.html

In summary ‘business assets’ include:

  • goodwill;
  • business licences;
  • debt of a business;
  • intellectual property; and
  • personal property.

Queensland businesses

A Queensland business includes a business that is any of the following:

  • conducted on or from a place in Queensland;
  • engaged in conduct that provides goods or services to Queensland customers; or
  • recently ceased conduct of either of the above.

If you operate a Queensland business and you transact dutiable property, transfer duty will be payable unless a concession or exemption applies.

What are the exemptions for transfer duty?

Broadly, Queensland exemptions are available to reduce transfer duty for:

  • death of a property owner;
  • home or property owners;
  • charitable institutions; and
  • legislation-specific exemptions.

There are also criteria for more complex exemptions available for corporate reconstructions.

Specific legal and accounting advice should be taken in relation to concessions and exemptions.

What if my business trades in multiple states?

If your business trades in multiple States you need to consider whether the property being transacted is:

  • a tangible asset such as real property; or
  • an intangible asset such as goodwill or intellectual property.

Generally, transfer duty will be payable in the State in which the asset is owned. For example, a transaction for Queensland land will have transfer duty payable to Queensland’s OSR even if the business operates or has its head office in another State.

The matter becomes more complex for intangible property as ‘apportionment’ must occur.

Apportionment

Intangible assets are assets that have an impact beyond State boundaries. The need for apportionment comes from Commissioner of Taxation v Murry [1998] HCA 42 (‘Murray Case’) where it was found that goodwill was inseparable from the conduct of a business and therefore it is not possible to have separate divisions of goodwill for each State for the same business.

The Murry Case does not mean that transfer duty is increased but rather that the total amount paid has to be rationed out to each State in which the business operates based on the difference between:

  • revenue earned over the last three (3) years in each State; and
  • gross revenue earned by the business overall.

Each State offers a statutory formula for calculating apportionment.

If you are concerned about the impact of transfer duty on a transaction, you should be sure to seek legal advice. Ramsden Lawyers are experts in all areas of taxation law and regularly assist our corporate and commercial clients to implement appropriate transaction structures.

This article is general in nature and should not be relied on as legal advice. Specific legal and accounting advice should be taken in relation to your circumstances.

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