Proposed Victorian landholder rules set to expand duty base

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13 April 2012

On 10 April 2012, the Victorian Government released an exposure draft of the Duties Amendment (Landholder) Bill 2012 (Bill). The purpose of the Bill is to introduce a landholder duty model into the Duties Act 2000 (Vic)(Act) to operate from 1 July 2012.

The announcement of the Bill follows the release of a Consultation Paper by the State Revenue Office in September 2011 (Consultation Paper) whereby the Government sought feedback on its proposed model. The proposed landholder regime departs significantly from the model adopted in other jurisdictions and represents a marked expansion of the Victorian duty base.

Key features of the Bill:

  • The 60% land rich ratio test has been removed
  • A company or unit trust is a landholder if it holds land with a market value of $1m or more in Victoria (compared to $2 million in New South Wales (NSW), Queensland and Western Australia (WA))
  • The existing land acquisition thresholds for when a taxpayer acquires a significant interest in a private landholder have been retained, namely 50% for a company and 20% for a trust (compared to 50% in most other landholder duty jurisdictions)
  • Landholder duty now applies to acquisitions of 90% or more of listed companies and listed unit trusts
  • The Government has removed the just and reasonable exemption and introduced a narrower concession exercisable by the Commissioner of State Revenue (Commissioner) in its place
  • The Government has greatly expanded the duty base by introducing the concept of ‘economic entitlement’ to capture transactions that would not otherwise be relevant acquisitions
  • The aggregation provisions have been extended to remove the 3 year limit on the period to which aggregation could apply. In addition, the definition of “associated person” has been expanded so that third parties may now be associated persons
  • The concept of land has been broadened to include anything fixed to land even if it is only resting on its own weight and whether or not the item constitutes a fixture at law, is separately owned from the land or is notionally severed or considered to be legally separate to the land as a result of the operation of any other act or law. This effectively extends the tax to goods (stock in trade is specifically excluded) even though the Consultation Paper stated that goods were to be excluded from the duty base.  Given that most, if not all goods will rest on their own weight, this arguably means that the value of all or most goods will be included in determining whether a landholder satisfies the $1m threshold.

Listed entities

Consistent with the landholder regime in other jurisdictions, the acquisition of a 90% or greater interest in listed companies or unit trusts will be dutiable. Duty will be payable at a “concessional” rate of 10% of the transfer duty rate (currently 0.55%), however, if a person makes a relevant acquisition in a listed company or trust within 12 months of that entity becoming listed, the person making the relevant acquisition will be liable for duty as if the relevant acquisition were in a private landholder (ie duty will be payable at the full rate rather than the concessional rate). This is so, whether or not the listing was designed to avoid duty.

Also, companies or trusts that are listed on exchanges other than the Australian Securities Exchange (ASX) will need special approval from the Commissioner to be treated as listed companies, even if the relevant exchange is a member of the World Federation of Exchanges.

The definition of listed company is narrower than other jurisdictions. For example, in NSW listed company means a company any of the shares of which are quoted on the ASX or any exchange of the World Federation of Exchanges whereas the definition in the Bill states a listed company means a corporation all of the shares in which are quoted on the ASX or an equivalent exchange. If a company has a cross listing on two exchanges or if it has some listed and unlisted shares, then it may not be a listed company for the purposes of the landholder rules.

Retention of the existing acquisition thresholds

Other Australian jurisdictions (such as NSW and WA) have increased the acquisition thresholds for when a taxpayer acquires a significant interest in a landholder to 50% to ensure the provisions were more revenue neutral as between trusts and companies. However, the Victorian Government is retaining the existing acquisition thresholds, being 50% for companies and 20% for trusts, so when coupled with the removal of the 60% land rich ratio test, this means dealings in more entities will now be liable for duty.

This head of duty has moved from being an anti-avoidance measure to being a significant source of revenue in its own right.

Just and reasonable exemption removed

The landholder provisions are drafted extremely widely to capture all manner of transactions, while at the same time the discretions and exemptions introduced in the Bill are narrower than those under the existing Act. For example, section 85(2) of the Act currently provides that the Commissioner may exempt an acquisition if the Commissioner is satisfied the imposition of duty would not be just and reasonable. NSW has a similar provision in its legislation. However, the Government has removed this discretion from the Bill and replaced it with proposed section 89E which states the Commissioner may reduce the duty payable on an acquisition if, as a result of an anomalous duty outcome, the duty payable under this part is greater than the duty payable under Chapter 2. This is much narrower than the existing just and reasonable exemption.

Economic entitlement

As indicated above, a significant concern with the regime is the new notion of economic entitlement which arguably introduces a new transfer duty by stealth.

Proposed new section 81 applies if, within a 3 year period, a person alone or together with associated persons, directly or indirectly acquires an “economic entitlement” (being an interest of 50% or more) other than by a relevant acquisition. Such person will be deemed to have made a relevant acquisition of that percentage in the landholder.

Economic entitlement is defined very broadly such that if a person acquires shares or units in a landholder or enters into an arrangement in relation to a landholder under which the person is entitled to participate in dividends, income, rents, profits, capital growth or the proceeds of sale of the land, they will have an economic entitlement.  For example, it could apply to an arrangement by which a developer agrees to undertake development in return for a fee calculated by reference to the sale proceeds of the land. 

It is difficult to understand how a person can acquire an economic entitlement and be liable for landholder duty if they do not make a relevant acquisition. When coupled with the deeming of the entity in which an economic entitlement is held to be a private landholder, it would seem to have the result that the acquisition of 50% or more of a listed company or trust could be dutiable at full rates (notwithstanding the special rules for listed entities). Such a provision is draconian and will likely stifle investment in Victoria.

Transitional rules

The Bill also contains a number of transitional provisions relating to the aggregation of interests acquired prior to the commencement of the new landholder regime.  Essentially, certain existing interests acquired prior to 1 July 2012 will not be aggregated with those acquired after that date.

Inadequate consultation

The Government has given taxpayers a mere 4 business days to provide submissions on the Bill.


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Heran Kim

Special Counsel. Sydney
+61 2 9210 6200

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