On 3 May 2011, the Victorian Government handed down its 2011-2012 Budget which announced proposed changes to the land rich duty rules to take effect from 1 July 2012.
Proposed move from 'land rich' to 'landholder' model
Under the existing provisions of the Victorian Duties Act 2000, duty is imposed where a person acquires an interest of 50% or more in a 'land rich' private company or 20% or more in a 'land rich' private unit trust (this is referred to as a 'relevant acquisition'). A 'land rich' entity is one that holds land in Victoria with an unencumbered value of at least AUD$1 million and which has landholdings (wherever located) that represent 60% or more of its total assets. Duty on a 'land rich' acquisition is broadly payable at 5.5% of the unencumbered value of the underlying land held by the land rich entity proportionate to the percentage interest acquired in the land rich entity.
While the Government has not indicated how it proposes to amend the existing provisions, we expect that the changes will be in a form that will broadly bring Victoria into line with the other States and Territories (particularly New South Wales) which operate under a 'landholder' model.
The 'landholder' model imposes duty where the value of the entity's landholdings exceeds a certain value (e.g. AUD$1 million or AUD$2 million), irrespective of whether that land constitutes a significant proportion of the entity's total assets or not.
While the position varies between each State and Territory, the 'landholder' model can also impose duty on certain transactions involving listed companies and public unit trusts (a 90% acquisition threshold generally applies) and extend the duty base to include 'goods' associated with land (which the existing land rich provisions do not do).
The financial impact of the proposed changes has been estimated to increase revenue by AUD$50 million to AUD$75 million a year which has led to speculation that the relevant acquisition threshold for private unit trusts will not be increased from 20% to 50% as it was when the 'landholder' model was introduced in New South Wales.
As a result, it appears likely that the new 'landholder' rules will substantially broaden the types of transactions and entities that will be subject to duty in Victoria.
What do the proposed changes mean for you?
As legislation has not yet been introduced, the precise extent of the changes is unknown and many questions remain unanswered.
The announcement indicates that the State Revenue Office will undertake consultation with key stakeholders, taxpayers and the community in the design of the new 'landholder' regime.
If you are contemplating a transaction or dealing in shares in a company that holds land in Victoria with an unencumbered value of AUD$1 million or more, it is a case of watch this space. Depending on the precise changes, it may be preferable to undertake a transaction before 1 July 2012 (under the land rich provisions) or after 1 July 2012 (under the new 'landholder' provisions) depending on the circumstances of your particular transaction.
We will keep you updated as developments occur. We expect that at least the substance of the changes will be known before their operative date. In the meantime, should you require any further information in relation to the proposed introduction of the 'landholder' model or the existing land rich duty provisions, please contact us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
