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Stuart Courtney  
Senior Associate

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Frank Brody  
Partner
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Scott Farrell  
Stuart Fuller  

Melbourne
Peter Fogarty  
Ian Paterson  

Brisbane
Berkeley Cox  

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On 6 June 2006, the State Taxes Bill was introduced into the New South Wales Parliament as part of the State Budget. It significantly amends the mortgage duty provisions. These will apply from 1 July 2006 until the abolition of mortgage duty on 1 January 2011. The proposed amendments may impact on deals you are currently doing where securities are to be executed or funding is to be provided on or after 1 July 2006.

Some of the amendments restore provisions which existed in the past or provisions which borrow from other jurisdictions such as Queensland and Western Australia. There are further provisions which are unique to New South Wales, dealing principally with mortgage packaging. Importantly, there is some “grandfathering” for existing arrangements as well.

Mortgage duty abolition… eventually

The Bill provides for the phased abolition of mortgage duty in NSW by 1 January 2011. The abolition would occur in two phases; a 50% reduction by 1 January 2010 and complete abolition by 1 January 2011.

Specific identification

Following on from Queensland and Western Australia, New South Wales proposes to introduce a “specific identification” rule. The rule applies if you have an instrument of security which does not affect any property in NSW at the time of signing, but at that time some “relevant property” in NSW has been specifically identified as part of an arrangement under which that property is intended to be secured later.

If the rule applies, a liability to duty will arise when that property first starts to be affected by the security. An exception applies if the instrument either has been stamped or is exempt from duty in some other jurisdiction. “Relevant property” means all property, ie any legal or equitable proprietary interest whether tangible or intangible, but excludes:

• land
• quoted shares
• unquoted interests in quoted shares
• quoted interests in quoted shares
• units (whether quoted or not) in unit trust schemes where units have been offered to the public and there are 50 or more unitholders, and
• anything which is similar to such shares, interests or units.

These carve-outs appear to be specifically designed to continue to allow margin lending arrangements to continue to be structured in a duty free way.

Mortgage packaging

The Bill will restore the requirement that mortgages and other instruments of security be executed within 28 days of each other for them to form part of a mortgage package. Therefore in any situation where a financial assistance “whitewash” procedure is being used and post-whitewash securities are to be taken, then it would usually be preferable for these to be taken within 28 days of the borrower security being signed. If this does not happen, mortgage packaging could still apply outside NSW, with potentially difficult results.

Substantial amendments are made to the provisions dealing with calculating the amounts secured by a mortgage, including proportional stamping. The issue which these amendments seek to address is how to assess duty on a mortgage package where the package comprises securities which have a mixture of low limits, high limits and/or are unlimited in nature, including in financing arrangements where there is offshore property.

Limited securities assessment

A further rule which is restored into the New South Wales stamp duty legislation deals with the way in which securities for a “definite and limited sum” are to be assessed. Under the changes, this type of security is to be assessed on the amount of the limit regardless of the amount actually borrowed and is upstampable if the actual amount borrowed later exceeds that limit. While this has been in the NSW stamp duty laws before, it now appears in the Act together with the specific identification rule for the first time.

As a result, if you have a future asset charge with a $1 billion limit and there is some specifically identified New South Wales relevant property ie property other than land, quoted shares and interests or units as mentioned before, the liability to mortgage duty which will arise will be $4 million subject to the availability of any proportional stamping.

Collateral stamping where primary mortgage is stamped at a lower rate

The rates of mortgage duty decrease to approximately 0.2% and 0.175% in Western Australia and Tasmania from 1 July 2006. The State Taxes Bill changes the collateral stamping rules in New South Wales and Western Australia in response to this. If duty is paid at a rate which is lower than 0.4% and a collateral security is taken over New South Wales property more than 28 days later, this new rule will apply. Under the new rule, duty will be payable in New South Wales on a proportional basis but the duty payable in and outside New South Wales will be capped at 0.4%. This means that in some cases, the saving in Western Australia and Tasmania will be absorbed by New South Wales.

Transitional rules

There is some “grandfathering” provided in the new legislation, which may protect some existing structures. If you have securities which have been structured from a stamp duty perspective in place as at 30 June 2006, these arrangements need to be reviewed if an advance or further advance secured by them is made on or after 1 July 2006.

What do you need to do?

• Consider the impact of the amendments on deals being done now where securities are to be executed or funding is to be provided on or after 1 July 2006.
• Identify existing structured arrangements under which further funding could be provided on or after 1 July 2006 and determine the impact of the new provisions.
• Seek advice about any increase to limits on the amount recoverable before additional funding is provided under existing arrangements.