Victorian landholder duty

Background

The Victorian Government announced in 2011 that it would reform the current land rich duty provisions and adopt a landholder duty model from 1 July 2012. This reform follows the recent adoption of the landholder duty model in Queensland and South Australia and, once implemented, would mean that Tasmania will be the only Australian jurisdiction to retain the land rich duty model.

The Victorian landholder duty reform will mean that more transactions will be caught within the Victorian duty regime. While the policy aim behind the introduction of the landholder duty model is to reduce complexity and promote administrative efficiency, some aspects of the proposed model are inconsistent with other Australian jurisdictions and will 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.

In September 2011, the Government published a consultation paper outlining the proposed design features of the model. Exposure draft legislation was released for technical consultation in April 2012. The Bill to incorporate the landholder model into the Duties Act 2000 (Vic) was introduced on 1 May 2012.

Victorian Landholder Model

Victorian land rich duty currently applies duty to acquisitions in entities that are ‘land rich’.  An entity is ‘land rich’ if it has $1 million or more of land in Victoria and 60% or more of its assets (worldwide) in land. The Victorian landholder duty model removes the 60% land rich threshold, with the result that an entity will be a ‘landholder’ if it has $1 million or more of Victorian land.

Taxable landholding entities and acquisition thresholds

Currently, taxable landholding entities include private companies, private unit trust schemes and wholesale unit trust schemes.

Under the terms of the Bill, listed companies and listed unit trust schemes would also be included as taxable landholding entities. Listed landholder duty will apply 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 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 would apply 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 would be payable at 5.5% of the underlying land value deemed to be acquired.

Landholder duty would apply 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

The Bill introduces a new concept of ‘economic entitlements’, which would involve 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 would apply as if it is an acquisition of an interest in the landholder. This measure is also unique to Victoria and will bring to duty a wide range of transactions that are not currently taxed anywhere in Australia, including synthetic instruments.

Under the Bill, ‘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.     

The Bill provides 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 would be deemed to hold an interest in the underlying land assets.

The Bill provides a widened definition of “associated person”. For example, the widened definition would have 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 would potentially expand the interests in a landholder held by other persons that would 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 Bill alters the wholesale unit trust regime and the widely held trust regime 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, and others included in the Bill, will be significant.

Taxpayers should consider the impact of the Bill in respect of any transaction that involves an interest in Victorian land pre- or post-1 July 2012, including acquisitions, IPOs and/or restructures. Entities may find it beneficial to bring transactions forward to completion by 30 June 2012.

If you would like to discuss the potential implications of the changes contained in the Bill, please, contact your Deloitte Indirect Tax adviser.