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'
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.
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Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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