Buyers - and landholding entities of any kind - beware of new Victorian stamp duty reforms
Private Matters, December 2012
Whether you are a current landowner or developer with no existing landholdings, Deloitte Private Partner Robert Nguyen has words of warning about recent Victorian landholder duty reforms.
“What our clients need to look out for under the new rules is that whenever they enter into an arrangement involving land where they are sharing profits or sharing revenue from the development or sale of that land ̶ they must ensure that those agreements are not structured in a way that could inadvertently trigger a landholder duty liability,” Nguyen says.
He is referring to the landholder duty regime now in place from 1 July 2012 in Victoria, which incorporates the new landholder model into the Duties Act 2000 (Vic).
Victorian land rich duty previously applied duty to acquisitions in entities that were ‘land rich’ with $1 million or more of land in Victoria and 60% or more of its assets (worldwide) in land.
The new Victorian landholder duty regime 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.
“Victoria has now embraced what a number of states around Australia have done over the past few years and moved from what it traditionally called the ‘land rich’ duty model to a ‘landholder’ model,” Nguyen explains.
“But Victoria actually went further than what has been the traditionally accepted notion of what transactions landholder provisions are trying to collect money on. What they have done is introduce a model where an entity who acquires an ‘economic entitlement’ can potentially be liable to duty at land rates even though they are not acquiring any direct interest in the land or landowning entity itself.”
The new concept of ‘economic entitlement’, to which Nguyen refers, involves the taxing of acquisition rights, development rights and other transactions where the rights to the economic returns over land holdings of private landholders are obtained (i.e. private unit trust schemes, private companies, wholesale unit trust schemes) without a direct land acquisition.
Under the new rules, duty will also apply to the acquisition of an ‘economic entitlement’ as if it is an acquisition of an interest in the landholder itself. This measure is unique to Victoria and will result in duty applying to a wide range of transactions that are not currently taxed in any other State or Territory in Australia.
Under the other changes to the Act, ‘land’ is defined very broadly to include “anything fixed to the land” regardless of whether or not the ‘thing’ constitutes a fixture at law. For example, 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 reform also has a widened definition of “associated person”. 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 expands 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 Victorian reform follows the recent adoption of the landholder duty model in Queensland and South Australia and means that Tasmania will be the only Australian jurisdiction to retain the ‘land rich’ duty model.
In other stamp duty developments, NSW was scheduled to abolish mortgage duty and duty on business asset and share transfers from 1 July this year. But less than a month before the scheduled abolition date, the O’Farrell government deferred abolition until 1 July 2013.
Robert Nguyen says recent State tax changes (including deferral of announced duty abolition) should be seen in the context of stagnant State revenue collections as well as the state and federal governments haggling over GST revenue sharing and the states’ needing to respond to not getting a bigger slice of the GST pie (which itself has not been growing at the same rate as in previous years).
For further information please contact:
Deloitte Tax Services
Tel: + 61 2 9322 7239