The mortgage duty refinancing concession under the Duties Act 1997 (NSW) (Duties Act) has been amended with effect from 1 August 2005 to limit the amount of advances for which the concession is available to $1 million. This will effectively restrict the concession to residential and small business transactions.
Under the current terms of the concession, if certain conditions are satisfied, mortgage duty is not payable on a refinancing mortgage to the extent that it secures advances secured by an earlier stamped mortgage that is or will be discharged. From 1 August 2005, the extent of the concession will be capped at $1 million of advances. This means that if a refinancing mortgage secures advances of more than $1 million, ad valorem mortgage duty (at the rate of 0.4 per cent) will be payable on the amount of advances which exceeds $1 million.
This amendment is likely to limit the usefulness of the refinancing concession for most transactions. The same comment applies to the refinancing concessions available in Queensland, South Australia and Western Australia (where the concessions are available for limited purposes only). Tasmania remains the only state where a general refinancing concession is available in respect of the previous amount secured; that concession is available where the loan is used for 'any commercial undertaking'. (Note that there is no mortgage duty in Victoria or the territories.)
Transfer of mortgages
An alternative security structure for a refinance may involve the transfer of existing stamped mortgages to the new lender and if required, the granting of additional security in favour of the new lender. Currently, ad valorem mortgage duty would be payable only if the amount secured by the transferred mortgages exceeds the amount for which those mortgages have been duly stamped. Each additional security may be stamped with nominal duty on the basis that it is collateral to the transferred mortgages which have been duly stamped.
The Duties Act has been amended so that from 1 August 2005, a mortgage that is transferred to a new lender will not be treated as duly stamped in respect of previous advances secured by the mortgage when the lender makes new advances. That is, the transferred mortgage will be treated as a new mortgage chargeable with ad valorem duty in respect of advances secured by the mortgage that are made after the mortgage is transferred (or made in connection with the transfer).
Syndicated finance and security trust structure
Security trust structures are commonly used in syndicated financing transactions under which securities are generally granted in favour of a security trustee who holds the securities on trust for the benefit of the lenders (ie the beneficiaries of the security trust). Subject to appropriate drafting of the security trust deed and the securities, a security trust structure may afford protection from the impact of those amendments.
It is also important to consider the potential implications of the above amendments when establishing a security trust or in changing the trustee of an existing security trust. The identity of a security trustee will, in particular, be important as the transfer of mortgage provisions described above only apply where the transferee of the mortgage is a person who makes an advance or further advance, or is a party to particular arrangements relating to contingent liabilities under a guarantee, indemnity or another instrument. Therefore, a mortgage that is transferred to a special purpose trustee who is not such a person or party should not be affected by the amendments.
This article was prepared by Anna Yeung, Senior Associate and Jinny Chaimungkalanont, Solicitor.
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