The decision of the Supreme Court of New South Wales in
Bondi Beachside Pty Ltd v Chief Commissioner of State
Revenue  NSWSC 21 is a timely reminder of the need to
obtain specialist stamp duty advice even in the face of the
impending abolition of mortgage duty in New South Wales from 30
June 2013 (assuming that abolition is not again deferred).
The case was primarily concerned with the question of whether
the extension of the termination date of a financing arrangement,
commonly referred to as a "deferred note purchase
arrangement" (and which was employed prior to major changes
being made to the Duties Act 1997 (NSW) (Duties
Act) which took effect from 1 July 2009) amounted to a
forbearance to require the payment of money owing under section
206(a)(iii) of the Duties Act. If it did, mortgage duty
would be required to be assessed at the time of the extension on
the basis that the forbearance was an "advance" within
the meaning of the Duties Act.
Under the deferred note purchase arrangement, the financier
provided financial accommodation to a company via an agreement to
defer the payment of the purchase price for a debt instrument
issued by its wholly-owned subsidiary. Security for the unpaid
purchase price was granted to the financier by the company and its
wholly-owned subsidiary. As the security did not at the time of
execution secure an "advance", only nominal mortgage duty
However, the termination date of the arrangement (ie. the date
on which the unpaid purchase price was required to be paid in full)
was extended on a number of occasions. The question for
determination by the Supreme Court was whether such extensions were
a "forbearance to require the payment of money owing on any
account whatever" so as to fall within the definition of
"advance" under the Duties Act. Gzell J agreed with the
submissions of the Chief Commissioner and found that the extension
of time for payment constituted an advance by way of forbearance.
As a result, the existing securities now secured an advance and
would be liable to mortgage duty.
Implications for financiers and borrowers
Financers and borrowers that have deferred note purchase
financing arrangements in place should be aware of this decision
and take stock of whether any past variation to the arrangements
may have triggered a liability to mortgage duty. If it has, and the
correct amount of mortgage duty has not been paid, there may be
expected to be difficulties with the enforceability of the security
until such time as the duty is paid. Further, the decision
highlights the need to obtain specialist stamp duty advice when
amending complex financing arrangements or granting further
security for existing transactions.
Abolition of NSW mortgage duty
New South Wales is the only State or Territory that currently
imposes mortgage duty but this is due to be abolished on and from 1
July 2013 (assuming there is no further deferral of the abolition).
The Duties Act has a number of transitional provisions
concerning the abolition of which note should be taken in relation
to any secured financings that may straddle the abolition date.
Importantly, mortgage duty will continue to apply to mortgages
first executed before 1 July 2013. However, no additional mortgage
duty will apply in respect of an advance or further advances made
after that date.
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.
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