NSW Government Tightens Its Grip On Lenders With Tough New Mortgage Duty Laws

From 1 July, New South Wales will not only be the only state in Australia that still imposes duty on mortgages, but will also seek to raise more revenue by broadening the operation of the existing law.

These new revenue raising initiatives are part of the State Revenue Legislation Further Amendment Bill 2009 which is expected to operate from 1 July 2009. The provisions are complex, so in this update we do not deal with the provisions in detail.

Key initiatives

• How duty will be applied to limited securities becomes unclear
• Note structures and other 'no advance' structures will be subject to mortgage duty
• Additional duty may be payable in respect of further advances under existing multi state facilities
• Wide anti-avoidance provisions apply.

The new provisions apply to mortgages executed on or after 1 July 2009 and to advances made after 1 July 2009 in connection with existing mortgages.

If you have arrangements which may be impacted by these initiatives, contact us urgently so that suitable arrangements can be made prior to 1 July 2009.

Limited securities

Under the current law, if a mortgage specifies a specific amount, duty is payable on that amount. For example, a borrower may owe a lender $10m but the parties agree to give security for only $1m of those advances. Put another way, recourse under the mortgage is limited to $1m. Until 30 June 2009, mortgage duty would be payable on $1m not $10m.

From 1 July 2009, it appears that mortgage duty will be payable on $10m. If further advances are made under an existing limited recourse mortgage, mortgage duty becomes payable on the whole advance. The drafting is not clear on this issue, and as it has not been expressly mentioned in any supporting material. We will be lobbying for clarification.

If the new law operates as we describe above, this represents a fundamental shift in the way mortgage duty is assessed. This measure goes beyond mere anti-avoidance provision and broadens the tax net to impose duty on unsecured, or partially unsecured, advances.

Note structure and 'no advance' arrangements

The Bill will sound a death knell for note structure arrangements that have become commonly used for project financing.

The proposed amendments catch these note structure arrangements by charging duty on the amount of any advances made under an "agreement, understanding or arrangement" for which the mortgage is security, whether or not the advance is recoverable under the mortgage.

Further advances – retrospectivity and double duty for multi-state mortgages

Currently, when security is taken over assets in a number of states, credit is given for duty paid outside NSW. However, under the amendments, when additional advances are made after 30 June 2009, mortgage duty will charged on the total advances (pre and post 1 July 2009) with limited or no credit for duty paid in other places.

General anti-avoidance provisions

The general anti-avoidance provisions (GAAP) are designed to deter artificial, blatant or contrived schemes that may otherwise reduce, avoid or postpone liability for duty.

The broad scope of the GAAP will increase uncertainty for parties that enter into legitimate commercial arrangements which produce a more favourable stamp duty result or which defers the ultimate liability for stamp duty.

For more information, please contact:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.