Part III - Stamp And Cheque Duties Amendment Act (No 2) 1988

This commentary item was published in Public Information Bulletin Volume 174, May 1988.

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This Amendment Act repeals all stamp duty payable on instruments executed on or after the 17th of March 1988, except for duty payable in respect of commercial land and buildings. Duty will continue to be payable under the old legislation in respect of instruments executed before that date. Where more than one instrument is executed in respect of the same transaction and one of those instruments was executed before the 17th of March 1988 the old legislation will apply to all the instruments involved in that transaction. In particular if an instrument executed before the 17th of March is deliberately destroyed and a replacement instrument is executed on or after that date, the replacement instrument will be liable for duty.

In future only commercial land and buildings will be subject to stamp duty. Duty has been totally abolished in respect of all other property such as shares, mortgages, counterparts and goodwill. All residential property is exempted from duty and the first farm exemption which applies at present will continue to apply in its present form. The change affects conveyance duty, lease duty, deed duty and denoting duty. Cheque duty and credit card transaction duty will continue to be payable as the legislation imposing those duties remains unchanged.

The legislation has been amended, in respect of instruments executed on or after 17 March 1988, to limit conveyance duty and lease duty to conveyances and leases of land, buildings, improvements and appurtenances and to shares in flat or office owning companies which carry the right to occupy a flat or an office. The legislation then provides a total exemption, in the new sections 24 and 35, for conveyances and leases of dwellinghouses and for shares in a flat or office owning company to the extent that they carry the right to occupy a dwellinghouse therein.

A dwellinghouse is defined in the legislation, both for conveyance duty and lease duty purposes, as a house, flat, townhouse, home unit or similar dwelling erected primarily and principally as a residence. The definition includes any land improvements or appurtenances belonging to the residence or usually enjoyed with it. To be eligible for the exemption, the dwellinghouse must be occupied primarily and principally as a residence as soon as practicable after the date of execution of the instrument of conveyance. There is, however, no requirement that it is occupied by the purchaser or a member of the purchaser's family. Accordingly, flats will be eligible for the exemption. The exemption will not apply in respect of hotels, motels and similar buildings as they are not the types of buildings specified in the dwellinghouse definition.

Land purchased for the purpose of having a dwellinghouse erected on it will qualify for exemption provided a dwellinghouse is erected on the land as soon as is practicable and provided the dwellinghouse is occupied as a residence as soon as practicable after execution of the instrument of conveyance.

Where a dwellinghouse forms a part of a property that is used for other purposes (e.g., a farm or a custodian's flat in an office building), the legislation requires an apportionment to be made so that the exemption can apply in respect of the value of the dwellinghouse. Also, the legislation contains a restriction on the area of land that can be regarded as part of the dwellinghouse. It restricts it to a maximum of 4500 square metres or such larger area as the Commissioner is satisfied is appropriate for residential purposes having regard to the size, of character of the residence and the nature of the property.

Where a building is used wholly for residential purposes, but contains more than one "dwellinghouse" it is fully exempt provided the definition of "dwellinghouse" is fully met. The exemption would apply to a block of flats but not to a hotel as the former contains "dwellinghouses" (i.e., flats) but the latter does not.

The legislation requires instruments to be presented for stamping only where there is, or may be, a liability for stamp duty. Instruments which are clearly exempt need no longer be presented, although instruments relating to first farms or residential properties in excess of 4500 square metres will still need to be presented as these require the Commissioner to exercise a discretion before they can qualify for exemption.

Where an instrument is not liable for duty but either of the parties wish to have it stamped it may be presented to the Department for stamping. If it is not liable for duty it will stamped 'not liable' without charge.

Stamp duty will no longer be payable in respect of the conveyance of shares (other than shares in flat or office owning company) where the relevant instrument is executed on or after 17 March 1987. As a result, the legislation repeals the provisions that enable stockbrokers to stamp share transfers. The repeal, however, applies only in respect of documents executed on or after 17 March 1988, the effect being that if for any reason clients wish those share transfers to be stamped 'not liable' it will be necessary for them to be stamped by the Department. In relation to share transfers which were executed prior to 17 March 1988 the previous arrangement continues to apply notwithstanding the fact that the document will be stamped after 17 March. The arrangement is in terms of the section 51A agreement entered into between the Commissioner of Inland Revenue and the New Zealand Stock Exchange Association. The arrangement authorises the payment of stamp duty payable on an instrument of conveyance executed in fulfilment of an authorised transaction. Under the Stamp and Cheque Duties Act a contract note is an instrument of conveyance and for the purposes of the agreement the payment of stamp duty, for the purchase of shares, is made when the contract note is completed by an authorised sharebroker. Accordingly:

• No stamp duty will be payable on instruments of conveyance, for the purchase of shares, where a contract note has been completed by an authorised sharebroker on or after 17 March 1988. This is so even if the vendor has exercised a selling order prior to 17 March 1988.
• Contract notes completed prior to 17 March 1988 will be liable for stamp duty, the payment of which should be made in a normal manner.

The exemption in relation to share transfers applies not only to shares in public companies but also to shares in private companies. The exemption applies notwithstanding the fact that the company may own land and buildings which would be subject to stamp duty if the property, rather than the shares, had been transferred. In future, the only shares that will be subject to conveyance duty, at the rate of 40 cents per $100, are shares in a flat or office owning company, the articles of which provide the holder of shares with the right to occupy an office or other commercial premises. These shares will be exempt only where they convey the right to occupy a dwellinghouse.

Finally, deed duty and denoting duty have been totally abolished in respect of instruments executed on or after the 17th of March 1988.

The following is an explanation of the provisions in the legislation which achieve these overall effects.

Section 1

is the Short Title and Application Date provision. It provides that the amendments apply to instruments executed on or after the 17th of March 2988. Where more than one instrument is executed in respect of the same transaction and one of those instruments was executed before the 17th of March, all instruments relating to that transaction will be subject to the law which applied prior to the amendment.

Section 2(1)

inserts a new definition of land into section 2 of the principal Act. The new definition covers land within New Zealand and includes:

1. Buildings, appurtenances and improvements;
2. Any mining right relating to land in New Zealand;
3. Any mining right relating to the foreshore, the seabed, the subsoil beneath the seabed, or the waters above the seabed, within the territorial limits of New Zealand;
4. Any licence issued under the Petroleum Act 1937 or the Continental Shelf Act 1964 in respect of the continental shelf beyond the territorial limits of New Zealand.

In addition, the legislation makes it clear that the definition includes any estate or interest in land (i.e., in land, buildings, mining rights, etc) whether or not that estate or interest is legal or equitable, corporeal or incorporeal. However, the definition does not include any mortgage, debenture, bond or other security for the payment of money that is charged on land.

The principal reason for this definition is contained in the section of the principal. Act which imposes stamp duty. Under that section "conveyances and leases of land" will be subject to stamp duty where the instrument is executed on or after the 17th of March 1988.

Section 2(2)

of the Amendment Act inserts a new definition of property into section 2 of the principal Act. It is defined as meaning any property, or proprietary right, in land or in shares in a flat or office owning company. It essentially embraces the two types of property which in future come within the provisions of the stamp duty legislation.

Section 2(3)

includes, in section 2 of the principal Act, a new definition of 'shares' and a definition of 'shares in a flat or office owning company'. These definitions are largely self explanatory. The first limits 'shares' to shares in a flat or office owning company. The latter defines these as being shares in a company whose articles provide that the holder is entitled, by virtue of being the holder of the shares, to occupy or use a flat, office, commercial or other premises on land in New Zealand. These shares continue to be liable for stamp duty, subject of course to the exemption for residential premises.

Section 3

inserts a new section 10 into the legislation with application to instruments executed on or after the 17th of March 1988. The new section restricts liability to stamp duty to conveyances and leases of land and conveyances of shares in a flat or office owning company. The provisions of the present section 10 will continue to apply in respect of instruments executed before that date.

Section 4

inserts a new section 24 to provide an exemption from conveyance duty in respect of residential land and buildings. The exemption will apply to property which is:

1. a dwellinghouse.
2. Land acquired for the purpose of having a dwellinghouse erected on it.
3. Shares in a flat or office owning company that carry a right of use or occupation of a dwellinghouse (but only to the extent of the value of the dwellinghouse).

Before the exemption can apply, it must be established that the dwelling will be occupied as soon as possible after the date of execution of the instrument of conveyance, primarily and principally as a residence. Where this test is not met, the exemption cannot apply. There is, however, no requirement that the dwelling be occupied as a principal place of abode nor is it necessary for it to be occupied by the purchaser or by a member of the purchaser's family.

Subsection (2)

of the new section 24 sets out the rules relating to the apportionment of the value of a conveyance between property that is liable for stamp duty and property which is exempt. It provides for an apportionment where:

1. The property conveyed in an instrument consists partly of property that is subject to stamp duty and partly of property which is exempted by subsection (1) of section 24.
2. The property exceeds the greater of 4,500 square metres or such area as is reasonably appropriate for residential purposes having regard to the size and character of the dwellinghouse (either one or more dwellinghouses on the property or one or more to be erected thereon) and to the nature of the property.
3. Any building (or buildings) on the property, or to be erected thereon, are to be used partly as a dwellinghouse (or dwellinghouses) and partly for other purposes.

In these cases, the legislation provides for the value of the dwellinghouse to be excluded from the value of the property in determining the amount on which stamp duty is payable.

Subsection (3)

of the new section 24 contains the definition of a dwellinghouse. It means a building or part of a building, that is a house, flat, townhouse, home and or similar dwelling erected primarily and principally as a residence. The definition includes any land, improvements or appurtenances belonging to the dwellinghouse or usually enjoyed with it. It does not include a hotel or motel or similar property but would include a building which consisted solely of a number of dwellinghouses (e.g., a block of flats).

Section 5

of the Amendment Act inserts a new section 35 to provide an exemption from lease duty for dwellinghouses. The exemption is the same as that provided in relation to conveyance duty by the new section 24 (discussed above), with the exception that it does not make reference to shares in flat or office owning companies as this is not required.

Section 6

of the Amendment Act abolishes deed duty and denoting duty by repealing sections 36 and 37 of the principal Act. These duties will not be payable on any instrument executed on or after the 17th of March 1988.

Section 7

of the Amendment Act makes a number of consequential amendments as set out in Part 1 of the First Schedule to the Act. The section also amends a number of enactments and these are set out in Part II of the First Schedule. The amendments are all required as a result of the fact that in future conveyance duty and lease duty are payable on commercial land and buildings only. They are largely self explanatory, but the following points should be noted:

• the concessional rate for shares and mining rights contained in section 15(3) of the Act has been retained, although in future only shares in flat or office owning companies will be subject to conveyance duty.
• the exemption for first farms (section 22B) has been retained. The amendments in Part 1 of the Schedule remove references to shares and farming companies as the conveyance of shares in a company is no longer subject to conveyance duty.
• although sections 51 and 51A nave been repealed, they remain in force in respect of all instruments executed before the 17th of March 1988, even where the document may be stamped after that date. The repeal applies only in respect o instruments executed on or after 17 March 1988, as do all the other repeals contained in Part 1 of the Schedule.

Following the introduction of the legislation, some questions have been raised concerning its application. The most commonly asked questions, and the answers to them, are as follows:

Q:

Are documents which are no longer liable for duty still required to be presented?

A:

Documents which are clearly not liable for duty are not required to be presented. However, if for any reason any person wishes to present a document to the Department for stamping, it will be stamped not liable without charge if no stamp duty is payable.

Q:

If an agreement is executed before 17.3.88 but the relevant transfer takes place on or after 17.3.88, is the transfer liable for duty?

A:

Yes it is liable for duty. Where more than one instrument is executed in respect of the same transaction and one of those instruments was executed before the 17th of March 1988, then all of those documents will be liable for duty.

Q:

Are assignments of hire purchase liable for duty?

A:

Assignments of hire purchase will only be liable for duty if the instrument was executed before the 17th of March 1988.

Q:

Do transfers of residential land over 4,500 square metres still have to be presented?

A:

Yes they have to be presented. The property is only exempt where the Commissioner exercises a discretion under section 24 of the Stamp and Cheque Duties Act 1971.

Q:

Section 47 of the Land Transfer Act 1952 requires documents that are liable for stamp duty to be stamped by Inland Revenue before they can be registered. Does this mean that documents which convey residential property must continue to be presented for stamping to enable them to be registered by the Land Transfer Office?

A:

Agreement has been reached with the Registrar-General of Land and the New Zealand Law Society in relation to whether instruments of conveyance or lease of residential property must be stamped by the Department. It has been agreed that instruments will be accepted for registration by the Land Transfer Office where they have either been stamped by the Department or are accompanied by a certificate, signed by a solicitor who is a member of the Law Society, that takes the following form:

INSTRUMENT OF CONVEYANCE

"I hereby certify, for the purposes of the Stamp and Cheque Duties Act 1971, that no conveyance duty is payable on this instrument by reason of the application of section 24(1) of the Act, and that the provisions of subsection (2) of that section do not apply"

LEASE

"I hereby certify, for the purposes of the Stamp and Cheque Duties Act 1971, that no lease duty is payable on this instrument by reason of the application of section 35(1) of that Act, and that the provisions of subsection (2) of that section do not apply"

There is no obligation on any solicitor to complete this certificate. Where a solicitor is unwilling to do so, the Department will stamp the instrument in the usual way. In these cases, some evidence will need to be provided to satisfy the Department that the property meets the requirements of section 24, or 35, of the Act.

A new form is being prepared for conveyances and leases of residential property and this will be made available as soon as possible. In the meantime a suitably adapted form IR673 similar certification, signed by the purchaser, will be acceptable.

Q:

What if there is any doubt over liability for duty?

A:

Documents may be presented to the Department for determining whether or not they are liable for stamp duty. If the document is not liable for duty, we will stamp it "not liable" without charge.

Q:

Do instruments in respect of first farms have to be presented? If so, is form IR670 still suitable for use?

A:

Yes a farm is only exempt from duty if the Commissioner is satisfied that the conditions of section 22B of the Act are fulfilled.

The form used for the first farm exemption will continue to be suitable in the immediate future.

Q:

Is goodwill which is involved in an agreement for sale and purchase of a business still liable for duty?

A:

If the agreement for sale and purchase was executed before the 17th March 1988 then the goodwill aspect is liable for stamp duty. Instruments executed on or after the 17th or March 1988 involving goodwill are no longer liable for duty.

Q:

Are sales and leases of fishing ITQ's (individual transferable quotas) still subject to stamp duty?

A:

No. Where the relevant instrument is executed on or after the 17th of March 1988 it will be exempt from stamp duty. Deed duty has been abolished and the definition of 'land' for conveyance duty and lease duty purposes no longer includes "any estate or interest in ...... the foreshore, the seabed, the subsoil beneath the seabed, or the waters above the seabed, within the territorial limits of New Zealand".