Circular 242 STAMP DUTIES ACT 1923 RENTAL BUSINESS PROVISIONS

This Circular is a general guide to the rental duty provisions (sections 31B to 31M) of the Stamp Duties Act 1923 (“the Act”).

A person who carries on a rental business that consists of or involves dutiable rental business must be registered in South Australia and subject to the following requirements, pay the appropriate duty.

(a) the business of conferring rights to the possession or use of goods under a contractual bailment; or

(b) the business of acquiring the rights of the bailor under a contractual bailment; or

(c) the business of providing financial accommodation under a bailment plan; or

(d) the business of guaranteeing the obligations of a bailee under a contractual bailment or a bailment plan,

but does not include business of a class exempted by regulation from the ambit of this definition”[1] (Refer point (j) of Annexure B).

The term “dutiable rental business” was introduced into the Act by the Stamp Duties (Rental and Mortgage Duty) Amendment Act 2003 (“the Amending Act”), which was assented to on 24 July 2003, with the amendments taking effect from 1 October 2003. The definition of dutiable rental business describes the forms of rental business that are dutiable under the rental duty provisions of the Act.

a) conferring rights to the possession or use of goods under a contractual bailment to which this Division applies; or

b) guaranteeing the obligations of the bailee under a contractual bailment to which this Division applies; or

c) acquiring the rights of the bailor under a contractual bailment to which this Division applies; or

d) providing financial accommodation under a bailment plan where the trading stock is situated in South Australia; or

e) guaranteeing the obligations of the bailee under a bailment plan where the trading stock is situated in South Australia[2];

Although not exhaustive, the following types of business activities are considered likely to fall within the rental business definitions: leasing and hire-purchase (of various types of equipment), plant hire, scaffolding hire, fencing hire, party hire, computer hire, houseboat hire, car rental, container hire and communication equipment hire.

WHAT ARE THE COMPONENTS OF A “RENTAL BUSINESS” AND “DUTIABLE RENTAL BUSINESS”?

The Amending Act introduced a new term; namely “equipment financing arrangement” that distinguishes rental business as part of a financing arrangement from short-term hires and enables a split rate regime to be applied from 1 October 2003. Rental business under an equipment financing arrangement entered into from 1 October 2003, attracts a lower rate of duty (see “WHAT IS THE RELEVANT RATE OF DUTY” at page 6).

b) a contractual bailment for a term of not less than 9 months under which the final payment is not required to be made earlier than 8 months after the agreement is entered into;[3]

a contract or agreement under which a person who owns, or is entitled to the possession of, goods confers on another a right to possession or use of the goods, and includes a hire-purchase agreement, but does not include a contract or agreement conferring a right to the possession or use of goods, or providing for the sale of goods, incidentally to a lease of, or licence to occupy, or the sale of, land.[4]

“goods” includes all chattels personal and any fixture severable from the realty, but does not include money, livestock, things in action or books.[5]

(a) a contract or agreement for the letting of goods with an option to purchase the goods; or

(b) a contract or agreement for the sale of goods by instalments (whether the contract or agreement describes the instalments as rent or hire or otherwise),

but does not include a contract or agreement under which property in the goods passes on or before delivery of the goods.[6]

Hire-purchase agreements were included in the definition of contractual bailments with effect from 1 January 2003. Receipts from hire-purchase agreements entered into on or after that date are therefore dutiable, subject to certain exemptions (see Annexure B – MATTERS NOT TO BE INCLUDED IN STATEMENTS).

In determining whether a contractual bailment exists, it is important to consider the “use” of the goods by the person and not solely “possession” of the goods by the person. If in a contract or agreement a person is given a right to use goods without also being conferred a right to possess the goods, this is sufficient for the contract or agreement to be regarded as a contractual bailment. It is possible for goods to be used pursuant to a contractual bailment without the person necessarily having legal possession of the goods. (For example, certain vending machines may be used in a business without the person having legal possession of the machines).

From 1 October 2003, the rental business provisions apply to contractual bailments if in any period of liability:

a) the goods are, or are to be, used solely or predominantly in South Australia; or

(ii) they are not to be used solely in any one Australian State and it is not possible to determine which Australian State is to be the jurisdiction of predominant use.

If a motor vehicle is taken on hire under an equipment financing arrangement, and the motor vehicle is, or is to be, registered under the law of a State, the State in which the motor vehicle is registered will be taken to be the jurisdiction of its predominant use.[7]

In essence, if a motor vehicle is subject to an equipment financing arrangement, then the State in which it is registered is taken to be the place of its predominant use. For all other types of motor vehicle rental arrangements, which come within the rental business provisions of the Act (eg. short-term hires), the above general nexus apply (eg. predominant use in South Australia).

A registered person may rely on a statement from the hirer of goods as to where the goods are to be solely or predominantly used or where a motor vehicle will be registered, unless the person knows the statement to be false.

The registered person is not bound to inquire as to any change in the place of use of the goods or the place of registration of a motor vehicle.

It is an offence to falsely represent that hired goods will be used solely or predominantly outside South Australia[8].

For contractual bailments (including old equipment financing arrangements) entered into prior to 1 October 2003, the nexus provisions in the Act existing at that time apply. i.e. the rental business provisions apply if :

· any negotiations leading to the formation of the contractual bailment took place in South Australia; or

· the goods were delivered in South Australia to the person who obtained the right to their possession or use under the contractual bailment.

Under the Act, a person who carries on a rental business consisting or involving a dutiable rental business must be registered, irrespective of where the rental business is transacted and whether or not the person is resident, or has a place of business within South Australia[9].

WHEN SHOULD I LODGE A STATEMENT AND WHAT SHOULD IT INCLUDE?

A person who is, or ought to be, registered must not later than the 21^st day of each month, lodge with the Commissioner a statement in the approved form (“the Statement”) setting out:

1) the total amount received during the preceding month in respect of his or her rental business; and

2) the amount representing the component referable to equipment financing arrangements entered into before 1 October 2003 (the “old equipment financing component”); and

3) the amount representing the component referable to equipment financing arrangements entered into on or after 1 October 2003 (the “new equipment financing component”); and

4) the amount representing the component referable to other kinds of rental business (the “general rental business component”)[10].

The Act details matters that are to be included and not included in the Statement. For example, a registered person is required to include in the Statement amounts received for services incidental or related to the rental business or the relevant component of the business when calculating their duty liability. However, the Act allows for a statutory threshold and also servicing costs to be deducted from the gross amount received in relation to the use of goods under a contractual bailment (other than an equipment financing arrangement), prior to the calculation of any stamp duty payable in the relevant Statement period[11].

As hire purchase agreements were not brought within the rental duty base until 1 January 2003, the Statement need not include these amounts for agreements entered into before that date.

More detail on what matters are to be included and not included in the Statement are detailed in Annexures A and B respectively of this Circular[12].

Where the Commissioner is satisfied, on application in the approved form by a registered person, that the total rental business amount upon which duty is to be calculated for the ensuing 12 months is likely to be less than $120,000, the Commissioner may permit the person to lodge Statements and pay duty on an annual basis[13].

Under the Taxation Administration Act 1996 (“the TAA”), the Commissioner may upon application, also approve special return/Statement arrangements (eg. quarterly Statements)[14].

RevenueSA sends registered persons their Statements prior to the relevant period’s due date.

The rates for the general rental business component should be applied to the net amount of receipts from dutiable rental business included in the Statement. That is, the total amount received, net of any servicing cost deductions and after allowance for the statutory threshold.

Servicing Costs Deduction

The term “servicing costs” is not defined in the Act, however, the Commissioner has determined the term to mean costs directly incurred in servicing and maintaining the goods hired, but not the general expenses associated with operating the business.

The servicing costs deduction is the lesser of the actual cost of servicing the goods or an amount not exceeding 40% of the dutiable rental business receipts to be included in the relevant Statement, unless the Commissioner approves a higher deduction %.

The Amending Act introduced specific exceptions for the servicing costs deduction where an equipment financing arrangement or collateral agreement provides that the financier is responsible for those costs. (See point (o) under Annexure B – MATTERS NOT TO BE INCLUDED IN STATEMENTS).

To claim a full deduction of servicing costs for equipment financing arrangements entered into on or after 1 October 2003, the equipment financing arrangement or a collateral agreement will need to provide that the financier is responsible for servicing the goods and separately charge the costs. The cost of servicing if separately charged need not be disclosed and is not liable to duty.

If the costs are not separately charged in the equipment financing arrangement, the financier will need to obtain the approval of the Commissioner as to what proportion of a receipt can be categorised as a “servicing cost” and is exempt from duty.

Examples of servicing costs allowed and not allowed are detailed in this Circular at Annexure C and D respectively.

Threshold Deduction

From 1 January 2003 (which applies to the December 2002 Statement required to be lodged in January 2003) the Act allows for a statutory threshold of $6,000 per month for the general business component of the dutiable rental business, but not the old or new equipment financing components.

The effect is that a registered person should deduct $6,000 from the total amount received for the general business component of the dutiable rental business (and any servicing costs) in the relevant Statement period to arrive at a net figure on which duty is payable.

From 1 October 2003 (which applies to Statements required to be lodged in October 2003) the statutory threshold of $6,000 per month only applies to receipts from the general business component of the dutiable rental business. There is no threshold for receipts from equipment financing arrangements where agreements were existing at 1 October 2003 or entered into on or after that date.

WHAT IF I PAY DUTY ON THE SAME RENTAL RECEIPTS IN ANOTHER JURISDICTION?

Instances may arise where through the nexus or application provisions of the stamp duty laws in South Australia and corresponding laws in other States and Territories, duty may be payable on the same rental business in two or more jurisdictions.

If the Commissioner is satisfied, upon application by the registered person, that it would be reasonable in the circumstances, the registered person is entitled to a deduction of the rental duty amount otherwise payable in South Australia where an amount is paid in another jurisdiction in respect of the same rental business under a corresponding law for the corresponding period[15].

The underlying principle in applying the corresponding law provisions is for registered persons not to pay the equivalent of full stamp duty on the one transaction, in more than one jurisdiction.

The Act prohibits a registered person from passing on the liability to duty to its customer unless it occurs as part of a transaction exempted from the prohibition by proclamation[16].

By proclamation the Governor has exempted all commercial leasing transactions or other commercial transactions of a similar character to which the provisions of the Consumer Credit Act 1971 (now the Consumer Credit Code (South Australia) and the Consumer Transactions Act 1972 do not apply[17].

Therefore, in the majority of commercial lease and commercial hire-purchase transactions a registered person would not be prohibited from including a passing on of stamp duty provision in the agreement with its customer.

Penalty and expiation fees apply for non-compliance with the Rental Business provisions.

Footnotes

[1] See section 31B of the Act.

[2] See section 31B of the Act.

[3] See section 31B of the Act.

[4] See section 31B of the Act.

[5] See section 31B of the Act.

[6] See section 31B of the Act.

[7] See section 31C of the Act.

[8] See section 31M of the Act.

[9] See section 31D of the Act.

[10] See section 31F of the Act.

[11] See section 31I(1c) of the Act.

[12] See section 31I of Act.

[13] See section 31F(3) of the Act.

[14]See Part 6 of the TAA.

[15] See section 31I(1a)

[16] See section 31L(1)

[17] See Governor’s Proclamation 486/1986 - Gazette dated 9 April 1987.