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COMMISSIONER’S UPDATE – QUESTION & ANSWER
A. Provided none of the goodwill is site goodwill, duty would not be chargeable on the value of the P & E as a new lease has been entered into rather that an existing lease being transferred. Q. Does it matter if the lease is negotiated verbally? A. No. As above, provided none of the goodwill is site goodwill, duty would not be chargeable on the value of any plant and equipment transferred as a new lease has been entered into rather than an existing lease being transferred. Q. Are there any duty implications if a Tasmanian organisation merges with a mainland charitable organisation? A. Exemptions may apply under: s53(n) of the Duties Act 2001 if the transferee is a charitable organisation, or if the transfer is for religious or educational purposes and a gift; or s53(a) which exempts the transfer subsequent to the amalgamation of associations. Q. Is it correct to say that charitable organisations don’t pay duty? A. No. Duty is only not payable on transfers that are a gift. Q. You have taken duty off leases, but now charge duty on plant and equipment transferred as part of a sale of business. A. Yes, there is no longer any duty on leases, except in respect of a premium paid pursuant to section 53(d). However, a lease constitutes an interest in land and has always been dutiable property. Likewise, plant and equipment has always been dutiable when the subject of an arrangement that includes another dutiable transaction. Q. How is a premium on a lease treated for duty purposes? A. A lease constitutes an interest in land and is therefore dutiable, however no duty is charged on the value of the lease itself unless a premium is paid (s53(d)). Under this section, duty is chargeable only on the value of the premium. Q. Fixtures to land are dutiable. What is the impact of the ‘fitout’ for duty purposes? A. If an agreement pertains to the sale of fitout affixed to land, it would constitute an interest in land. Q. How ‘real’ is the abolition of duty? A. Duty is no longer chargeable on commercial/name goodwill, personal goodwill, statutory licences and other property unconnected to real property. Duties Act - Site Goodwill Q. How do we assess site valuation as practitioners? Do guidelines exist as to the SRO’s approach to ascertaining the amount of site goodwill? A. In a limited number of cases a valuation may be needed. For further information, refer to the draft guideline Apportionment of goodwill value in respect of real property transactions released on 28 August 2008. Q. Isn’t the competency of the person running the business the key issue? A. No. The competency of a person running the business is the key issue only in terms of personal goodwill. There may still be site goodwill attached to the business’ location. Q. To what extent can parties make this call themselves? A. Parties must ask themselves how much more, if at all, the site is worth taking into account how much custom will automatically be attracted by virtue of the site as opposed to being attracted by other factors. Q. Surely if business operator is incompetent then custom will not be attracted? A. The competence of the business operator impacts on the personal goodwill component only. The business may still have site goodwill and commercial/name goodwill. Q. Does the amount of rental paid on a property reflect the site goodwill? A. The amount of rental is a matter for the parties involved, but in an arms-length commercial transaction the ability of the site to attract custom would typically be factored into the rental. The existence of a long term lease, of itself, does not mean that the property has site goodwill. Q. If a landowner sells property subject to a long term lease, will the property have site goodwill? A. The same issues arise regarding the existence of site goodwill whether there is a sale of freehold or a transfer of leasehold. The existence of site goodwill depends on whether or not the nature and location of the site has a particular advantage in attracting custom. Q. The public perception is that duty is no longer chargeable on the transfer of goodwill but this is not what has happened. A. The states and territories have adopted a consistent national position on the treatment of goodwill. Duty is no longer chargeable on a wide range of items including commercial/name goodwill, personal goodwill, statutory licences and other property unconnected to real property. Q. Does the SRO have internal processes in place to deal with site goodwill issues? A. Site goodwill valuation concerns are likely to arise in a small number of dutiable transactions involving business assets and real property as, in the majority of cases, site goodwill will already be included in the unencumbered value of the property as advised by the Valuer-General. In these cases, the Commissioner will typically be satisfied that the dutiable value is adequate provided the consideration reflects the unencumbered value of the property and provided that other amounts apportioned towards goodwill are reasonable. Valuations will therefore only be required if doubt exists with regard to the adequacy of the value attributed to the real property. Q. Is there any threshold with respect to the value of the transaction? A. No. The key issue is the adequacy of the consideration with respect to the property transferred. For further information, refer to the draft guideline Apportionment of goodwill value in respect of real property transactions. Q. Can you describe the type(s) of information required to determine site goodwill? A. Refer to the draft guideline Apportionment of goodwill value in respect of real property transactions. Q. How much revenue is generated by site goodwill? A. Revenue is not separately identified but, post abolition, it will be considerably less than previously when all goodwill was dutiable. Q. Will there be an obligation on the purchaser to identify site goodwill? How do we avoid having to obtain a valuation on every occasion? A. Identification/valuation will not be required if the goodwill is personal goodwill or commercial/name goodwill. A valuation will typically not be required if the consideration is adequate having regard to the unencumbered value of property transferred. Q. Will the Commissioner require evidence of valuation before assessment of goodwill? A. Not usually, unless the consideration is considered to be inadequate with respect to the unencumbered value of property transferred or the specific nature of the property. Q. In reality, getting a valuer to give advice quickly is an issue. A. This point is conceded but it is noted that a valuation will not be required in many cases and in most commercial cases a valuation will have been carried out as part of the process of ascertaining the sale price. Q. What is a ‘professional valuer’ or a ‘Competent valuer’? A. A ‘competent valuer’ is a “land valuer” as defined by the Land Valuers Act 2001. Q. Is SRO managing transition? A. Yes. The SRO has issued the guideline Abolition of Duty on the Transfer of Non-Real Business Assets and the draft guideline Apportionment of goodwill value in respect of real property transactions, and is providing an advice service. Q. Where land and business are sold together, will the land price cover site goodwill? A. This depends on the adequacy of consideration as noted above but site goodwill obviously attaches to the land, not the business. Q. Will site goodwill apply to large shopping centre premises? A. It is likely that there will be site goodwill applying to a large shopping centre – ie there would be “acquired” goodwill because persons have become accustomed to going to a particular location to conduct their business. Therefore a profitable business and its location is an important issue. Q. Will the same argument apply to a caravan park? A. It is unlikely that there would be site goodwill attached to a caravan park site – in Kizleap Pty Ltd v Chief Commissioner of Stamp Duties [2001] NSWSC 80, it was held that the goodwill relating to a caravan park business was personal goodwill and therefore did not attach to the land and was not included for land rich calculation purposes. Q. How do you separate site and name goodwill? For example, in a hairdressing salon custom will return irrespective of the site. A. This is a valuation issue – you would need to look at the site and the adequacy of consideration. If the customers will return to the business irrespective of where it is located there will be little, if any, site goodwill. Q. Murrys were a taxi business with a taxi licence. Is it correct that the sale of an asset separate from the business does not constitute a disposition of goodwill, and is therefore not a dutiable transaction? A. Yes. That is the authority established in Murrys’ case. Q. Will the SRO look at introducing more stringent requirements for larger value transactions? A. No, as noted in the draft guideline Apportionment of goodwill value in respect of real property transactions, the key issue will be adequacy of the consideration with respect to the property transferred. Q. What communications have been released in relation to site goodwill? A. A guideline Abolition of Duty on the Transfer of Non-Real Business Assets was released on 20 June 2008 and a draft guideline Apportionment of goodwill value in respect of real property transactions was released for public comment on 28 August 2008. Q. Do you need to assign a site goodwill component (ie site goodwill is dependent on the property) if you purchased a property such as Knopwoods? A. The business of a publican has site goodwill via the licence that confers the right to conclude a business that is otherwise prohibited. In the case of publicans, the Valuer-General includes the value of the licence when valuing the land as the licence confers the right to conduct a business on that site that would otherwise be unlawful. Q. What are the duty implications where a Heads of Agreement is executed before 30 June 2008 and the contract is not executed until after 1 July 2008? A. A transaction structured in this way would be treated suspiciously noting the possible application of the general anti-avoidance provisions. Additionally, the wording of a Heads of Agreement is often capable of constituting an agreement for sale and therefore being chargeable with duty. Q. How will partnership interests be dealt with? A. Partnership interests will be dealt with in the same manner as before except that there is no longer any duty on personal or commercial/name goodwill. Q. Will the transfer or assignment of lease as part of the acquisition of a business have an adverse effect for duty purposes? A. The value of other dutiable property transferred as part of a single arrangement where a lease is transferred or assigned will attract a duty liability. Q. Will the SRO be expecting to deal with partnerships in the same manner post abolition? A. Yes. The previous provisions were inadvertently repealed as part of the Revenue Measures Act 2005 and are to be reinserted in the Spring session of Parliament with retrospective effect from 1 July 2008. Q. Will Sale of Business transactions be subject to mandatory self assessment? A. No. Sales of business cannot currently be processed on Tasmanian Revenue Online and must be assessed by the SRO. The SRO is able to provide advice in this regard. Q. How long will it take to get a response back to a client? A. The SRO has committed to service standards contained in the Taxpayer Charter. In the case of assessment of documents, the SRO has committed to:
Conformity Q. When can we expect information on conformity? A. A conformity discussion paper The No Double Duty Provisions of the Duties Act 2001 was circulated to the property law committee and other interested parties on 2 October 2008. Amendments to widen the conformity provisions have been included in the next Miscellaneous Amendments Bill and are expected to pass Parliament during September-October 2008. Q. Has any consideration been given to treating trusts the same as corporations in conformity provisions? A. This has been considered but rejected as not falling within the original policy intent. There are also concerns that treating trusts the same as companies for conformity purposes would provide avoidance opportunities due to the relative ease with which ownership can be changed where property is held by a trust. Q. The SRO’s current position on the treatment of companies and trusts is inconsistent. A. This point is conceded but this is a conscious decision and is the current policy position as outlined in the question above. Q. How hard is it to put such a change through as an exemption? A. The Commissioner is the administrator and has to convince the Treasurer of the need for change. Q. What evidence is there as to the possibility of avoiding duty on trusts and conformity? A. A trust can literally have countless beneficiaries and section 41 operates to charge duty of $20 on a transfer of trust property to a beneficiary. As such there are some additional avoidance opportunities with regards to trusts not incorporated ie purchaser realises they can onsell the property and therefore transfers property to a trust. |
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