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Victorian landholder duty

Duties Amendment (Landholder) Act 2012

Background

In 2011 the Victorian Government announced that it would reform the land rich duty provisions in the Duties Act 2000 and adopt a landholder duty model from 1 July 2012. The legislation introducing the changes (Duties Amendment (Landholder) Act 2012) was given assent on 27 June 2012.

The Victorian landholder duty reform means that more transactions are caught within the Victorian duty regime. While the policy aim behind the introduction of the landholder duty model was to reduce complexity and promote administrative efficiency, some aspects of the model are inconsistent with other Australian jurisdictions and require taxpayers to carefully consider the stamp duty implications of their transactions where they transfer shares or units in an entity that holds Victorian land.

Victorian Landholder Model

Prior to 1 July 2012, the ‘land rich’ duty regime applied duty to acquisitions in entities that were ‘land rich’(i.e. entities that had $1 million or more of land in Victoria and had 60% or more of their assets, worldwide, in land). The landholder duty model has removed the 60% land rich threshold, with the result that an entity is a ‘landholder’ if it has $1 million or more of Victorian land.

Taxable landholding entities and acquisition thresholds

Previously, taxable landholding entities included private companies, private unit trust schemes and wholesale unit trust schemes. Under the new landholder model, listed companies and listed unit trust schemes are also included as taxable landholding entities. Listed landholder duty applies to acquisitions of 90% or more in public companies and listed unit trusts at an effective rate of 0.55% of the underlying land value (i.e. duty applicable at 10% of the general rate of duty in Victoria, which is 5.5%).

Landholder duty also applies to initial public offerings (IPOs) and other private-to-public conversions at an effective rate of 0.55% on the Victorian land values. This is unique to Victoria and will result in a large number of transactions being dutiable. No other State attempts to tax public listings.

Landholder duty would also apply to initial public offerings (IPOs) and other private-to-public conversions at an effective rate of 0.55% on the Victorian land values. This is unique to Victoria and will result in a large number of transactions becoming dutiable. No other State attempts to tax public listings.

Landholder duty applies to acquisitions of 20% or more of private unit trusts or 50% or more of private companies. Victoria is unique in maintaining this different treatment of private entity types in its landholder duty provisions. Duty on acquisitions in private entities is payable at 5.5% of the underlying land value deemed to be acquired.

Landholder duty applies to acquisitions of 50% or more of wholesale unit trust schemes, at the general rate of 5.5% of the underlying land value deemed to be acquired.

Other important design features of Victoria’s proposed landholder model

A new concept of ‘economic entitlements’ has been introduced, which involves the taxing of acquisition rights, development rights and other transactions where economic rights are obtained over land holdings of private landholders (i.e. private unit trust schemes, private companies, wholesale unit trust schemes) without a direct land acquisition. Duty applies as if it is an acquisition of an interest in the landholder. This measure is also unique to Victoria and brings to duty a wide range of transactions that are not currently taxed anywhere else in Australia, including synthetic instruments.

Under the new model, ‘land’ is defined very broadly to include “anything fixed to the land” regardless of whether or not the thing constitutes a fixture at law, is owned separately from the land, or is notionally severed or considered to be legally separate to the land pursuant to any other Act. An item can be fixed to the land “by virtue of a physical connection with that land”, although this will ordinarily require something more than the thing merely resting on the land under its own weight.

Provision has been made for the tracing of land assets through public landholders (such as listed entities). This is unique to Victoria and the Northern Territory. Under this measure, anyone with a 20% interest in a public entity is deemed to hold an interest in the underlying land assets.

The definition of “associated person” has been widened. For example, the widened definition has the effect of deeming A and C to be “associated persons” by virtue of A and B being “associated persons” and B and C being “associated persons”. This change potentially expands the interests in a landholder held by other persons that have to be aggregated with an interest a person acquires in the landholder, for the purpose of deciding whether the (aggregated) interest the person has acquired in the landholder meets the relevant acquisition threshold and attracts duty.

The wholesale unit trust regime and the widely held trust regime have been altered in various respects. Among these changes, widely held trusts are treated as a landholder and the listed entity acquisition threshold and duty consequences noted above apply.

Impact of the Victorian landholder duty reforms

The impact of these changes is significant.

The Victorian reform follows the recent adoption of the landholder duty model in Queensland and South Australia and means that Tasmania is now the only Australian jurisdiction to retain the land rich duty model.

If you would like to discuss the implications of the changes noted above, please, contact your Deloitte Indirect Tax adviser.

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