When GST was first introduced the States and Territories agreed to stamp duty reform. The broad intention of that reform was to reduce the stamp duty base. However, in the M&A space, the reality is quite different. The opposite has occurred. The stamp duty base has expanded.
To demonstrate this, statements that could previously be made about how stamp duty applies to mergers and acquisitions of companies are no longer valid. For example there were assumptions that duty is not charged on acquisitions of:
These assumptions are no longer valid. There has been a transformation in the key head of duty that now applies to M&A deals. That head of duty has two models: “land rich” duty and “land holder” duty. Under both models, if there is an acquisition of shares, duty is charged on the unencumbered market value of land in the jurisdiction owned directly or indirectly by the target company.
“Land rich” duty is the model we are accustomed to. It applies to an acquisition of 50% or more of an unlisted company if the company directly or indirectly owns land in Australia and land (consolidated & worldwide) represents 60% or more of total non-excluded property (consolidated and worldwide). Listed companies are not included and the 60% test is key in excluding companies from the duty base that do not have substantial land assets.
The new model is land holder duty. Land holder duty expands the duty base in two key respects. It applies to acquisitions of 90% or more of listed companies (in some cases at a reduced duty rate). There is no 60% test - only a modest dollar threshold of land in the relevant jurisdiction (the highest of which is $2 million). In addition, in some cases landholder duty is also charged on goods. Given the low thresholds, land holder duty can apply to any industry. It can even apply where the only land assets of a company are tenant’s fixtures.
At present, only Victoria and Tasmania have the old land rich models. The others have land holder models except for the Australian Capital Territory which has a hybrid model, namely: no land threshold or 60% test but only applies to unlisted companies. From 1 July 2012, the only jurisdiction left with a land rich model will be Tasmania. The duty base Australia-wide has therefore expanded significantly for M&A transactions.
In the result, the stamp duty implications for an M&A deal need to be assessed very early in the process. Stamp duty efficiency is critical. The potential for multiple incidences of duty for setting up the acquisition structure and on any post acquisition restructure needs to be properly managed.
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