An exposure draft of the Duties Amendment (Landholder) Bill 2012 (Vic) (Bill) has been released by the Victorian Government. The Bill will introduce a new Victorian landholder duty regime to take effect from 1 July 2012.
The move from a land rich duty regime to a landholder duty regime was first announced by the Government in the 2011-2012 State Budget: Changes to Victorian land rich duty announced in State Budget.
A Consultation Paper was then released in September 2011 which outlined the Government's preferred design of the new landholder duty model: Australia - Victorian landholder duty – Consultation Paper released.
The Bill generally accords with the model outlined in the Consultation Paper, however there are some notable differences in relation to the phase-in of duty, economic entitlements and entity conversions.
- The key features of the Bill are as follows:
- Landholder duty will apply where there is a 'relevant acquisition' in a 'landholder'. A 'relevant acquisition' will occur if an entity acquires a 'significant interest' in a landholder (in isolation or due to aggregation).
- An entity will be a 'landholder' where it has landholdings in Victoria with an unencumbered value of AUD$1m or more. Duty will be "phased-in" where the value of Victorian landholdings is between AUD$1m and AUD$2m.
- The 'landholder' definition includes private companies, private unit trusts, wholesale unit trusts, and has been expanded to include listed companies and public unit trusts (a 'public unit trust' is defined as a listed trust, widely held trust or registered public unit trust).
- The 'significant interest' threshold for listed companies and public unit trusts is 90% or more, however landholder duty will be charged at a concessional rate of 10% of the standard rate of transfer duty (however listed companies, listed trusts and widely held trusts must have had such status for 12 months or more).
- The 'significant interest' threshold for private companies and wholesale unit trusts will remain at 50% or more, and for private unit trusts will remain at 20% or more.
- All interests will be aggregated when determining whether a 'significant interest' has been acquired in a landholder, however duty will only be charged on acquisitions made in the last 3 years. This is significantly different to the current provisions, which only aggregate interests acquired in the last 3 years when assessing whether a relevant acquisition occurs.
- The meaning of relevant acquisition has been expanded to include an acquisition of an 'economic entitlement' that amounts to an interest of 50% or more in a landholder. An 'economic entitlement' is defined to include an arrangement under which a person is entitled to participate in dividends, income, rents, profits, capital growth or sale proceeds derived from the land holdings of a landholder. For example, it appears that the provisions may potentially apply to profit sharing arrangements under development agreements between developers and landholders.
- A new definition of 'land' has been included that expands its meaning to include anything fixed to the land, regardless of whether it constitutes a fixture at common law, is owned separately from the land or is notionally severed from the land.
- The Commissioner's discretion under the current provisions to exempt a transaction on the grounds that it is 'just and reasonable' will be replaced with a discretion to reduce the duty payable on a relevant acquisition where there is 'an anomalous duty outcome'.
- The conversion provisions have also been expanded so that the conversion of a private company to a listed company, or the conversion of a private unit trust to a public unit trust, will constitute a relevant acquisition of 100% of the interest in the relevant entity. However the duty payable on the conversion will be 10% of the duty that would otherwise be payable.
The transitional provisions will play an important role in assessing the application of landholder duty going forward. The following interests will not be aggregated under the new landholder regime (when assessing whether a relevant acquisition occurs):
- an interest in a private unit trust, private company, wholesale unit trust or public unit trust that was acquired before 1 July 2009; and
- an interest in a listed company or an economic entitlement that was acquired before 1 July 2012.
Furthermore, duty will not be charged on an aggregated significant interest in a private unit trust, private company or wholesale unit trust to the extent that the interest was acquired on or after 1 July 2009 and before 1 July 2012 if land rich duty was not chargeable on that interest when acquired and no land rich duty would have been chargeable on that interest had the post 1 July 2012 acquisition of an interest occurred prior to 1 July 2012.
If you are contemplating a transaction in an entity that holds land in Victoria with an unencumbered value of AUD$1 million or more, you should consider whether it would be preferable to undertake the transaction before 1 July 2012 (under the existing land rich provisions).
Entities proposing to enter into arrangements after 1 July 2012 that involve the sharing of income or profits from land will need to carefully consider the new provisions relating to 'economic entitlements'.
Please contact us if you require any further information in relation to the impending introduction of the landholder duty regime.
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.