The NSW Budget released on 17 November 2020 offers further necessary tax relief and incentives particularly for small business employers, commercial landlords and retail tenants. Perhaps more significantly, it heralds significant state tax reform which may be a template for similar reforms in other states and territories.
Major tax concessions – a template for the nation?
Proposal to replace stamp duty with an annual property tax
In what is the most far reaching proposal, NSW Government will commence a consultation process with a view to a permanent replacement of stamp duty with an annual property tax. Initially, the proposed model will offer buyers the choice between the new annual property tax or the current stamp duty. The proposal includes the replacement of the annual land tax that would otherwise be applicable for properties purchased from the commencement date of the new regime.
A table showing the proposed annual property tax rates follows:
As an example, using the average NSW house price of $871,800, payment of the upfront stamp duty would cost $34,566 plus the borrowing cost for the average of two and a half years usually taken to pay off that amount. If the unimproved value of that house was say $600,000, the annual property tax would be $2,300 initially. With the exception of purchasers expecting to live in their home for at least two decades, it can be expected that most home purchasers will select the annual property tax option.
The proposal includes measures to replace the existing first home owner stamp duty concessions with a grant of up to $25,000.
Payroll tax reforms
From 1 July 2020, the NSW payroll tax free threshold will permanently increase from $1m to $1.2m. For the period 1 July 2020 to 30 June 2022, the payroll tax rate will be cut from 5.45% to 4.85%.
Some examples of the savings the two combined measures will generate in the 2020-21 year are:
- Where the annual NSW wages are up to $1,275,000, the payroll tax already paid or accrued for July to October 2020 based on the existing higher rate and lower threshold may be the total that those businesses have to pay in 2020-21.
- Where annual NSW wages are $2m, the employer will pay NSW payroll tax of $38,800 instead of $54,500 – a saving of $15,700, and
- Where annual NSW wages are $10m, the employer will pay NSW payroll tax of $426,800 instead of $490,500 – a saving of $63,700.
Note: these examples assume the employer employs only in NSW. The savings will be of different amounts where it employs in other states and territories as the payroll tax free threshold is shared.
While the payroll tax rate change to 4.85% is only temporary, the Budget gives signals of a possible permanent payroll tax model. It referenced a review recommending that NSW “work with other states to address the hollowing out of payroll tax, support harmonisation and reduce complexity”. The higher rate, higher threshold model that NSW will return to in 2022-23 will be simpler for businesses, require fewer to pay the tax, sustain the NSW budget and may provide the revenue base and structure necessary for national harmonisation.
Payroll tax Jobs Plus Program
Announced shortly before the budget, the Jobs Plus Program provides payroll tax relief up to a four-year period for every new job created where a business has created at least 30 new net jobs. It applies where businesses have created the new jobs through business relocation from interstate or overseas. It can also apply where investment in job-creating projects, proposals or partnerships has resulted in at least 30 new net jobs. The details of qualification for this program have not yet been released but it will commence on 15 December 2020 and conclude on 30 June 2022.
$1,500 digital vouchers for SMEs
From April 2021 to 30 June 2022, small to medium-sized businesses in New South Wales which do not pay payroll tax will be entitled to a $1,500 digital voucher. It will be accessible through the MyService NSW portal and will refund up to $1,500 of Government fees and charges that the SME has paid.
$100 digital vouchers
To stimulate spending in the local economy, particularly the hospitality, arts and cultural sectors impacted by Covid-19, an Out and About program will be introduced. Every adult resident of NSW will be eligible to claim up to $100 in digital vouchers to spend at restaurants, visitor sites and cultural attractions.
Land tax refunds
A third 25% land tax refund payable to landlords has been announced - this time for the 2021 land tax year. In a nutshell, each of the three refunds is available for a maximum 25% of the land tax paid on the relevant property up to the amount of rent waivers & reductions given to the tenant by the landlord.
The main qualification for the two previous 25% reductions has been that the tenants suffered as a result of Covid-19, either:
- For commercial tenants with a turnover of no more than $50m – at least a 30% decline in turnover,
- For residential tenants – at least a 25% decline in household income, and
- For Not for Profit tenants – at least a 15% decline in turnover.
The third refund differs because it is only available for property leased to retail tenants who have a turnover of no more than $5m.
In summary, the three land tax refunds are:
- 25% of 2020 land tax for rent relief given during the period 1 April to 30 September 2020
- 25% of 2020 land tax for rent relief given during the period 1 October to 31 December 2020 period – noting that a commercial tenant’s 30% decline in turnover can be measured during the July to September 2020 period, and
- 25% of 2021 land tax for rent relief given during the period 1 January to 28 March 2021 – only available for retail tenants whose 30% decline in turnover is measured during the period October to December 2020.
Land tax concession for build to rent properties
Announced a few months before the budget, a 50% reduction in land tax will apply to “build to rent” residential developments. The reduction will apply for the 2021 to 2040 land tax years for developments where construction commenced after 1 July 2020. In metropolitan areas, the development must be of at least 50 residential lots.
Please contact your usual Mazars advisor about how these changes may affect you or your business, or alternatively contact our NSW indirect tax specialist, Stephen Baxter via phone or the form below:
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