The Victorian Government announced in the 2011-2012 State Budget that Victoria would move from its current land rich duty regime to a new landholder duty regime on 1 July 2012. The Government has now released exposure draft legislation for the new regime.
The new landholder duty regime has been designed to capture a broad range of transactions that involve acquisitions of both legal and economic interests in land holding entities. We expect a significant increase in the number of transactions that are subject to duty from 1 July onwards.
The main design features of the new landholder regime, including some important changes from the existing land rich regime, are highlighted below.
Abolition of the land rich ratio
The existing land value threshold of $1 million will be retained. The acquisition thresholds of at least a 20% interest in a private unit trust scheme and at least a 50% interest in a private company or a wholesale unit trust scheme will also remain. However, the existing requirement that land must constitute at least 60% of the landholder's total assets will disappear. Accordingly, entities whose land only constitutes a small proportion of their total assets may still be caught within the new regime.
Addition of public landholders
For the first time, the new regime will capture acquisitions of significant interests (at least 90%) in a listed company or a public unit trust. However, a concessional rate of duty equal to 10% of the full amount of duty will be imposed in circumstances where the listed company or public unit trust has been a public entity for at least 12 months.
Acquisition of economic entitlements
Under the current land rich regime, an interest in a company or unit trust is defined as an entitlement to a distribution of property of the landholder on a notional winding up of the landholder.
The new landholder regime will also capture acquisitions of "economic entitlements" that amount to an interest of 50% or more in a landholder. Economic entitlements will include arrangements under which the person is entitled to participate in the income, rents, profits, capital growth or proceeds of sale derived from the land holdings of the landholder.
New aggregation rules
The current 3 year limitation period for aggregating interests previously acquired in a land rich entity will disappear. Under the landholder regime there will be an unlimited period for acquisitions of interests in landholders to be aggregated for the purposes of determining whether a significant interest has been acquired. However, once a significant interest is acquired, only interests acquired within the previous 3 year period will be subject to duty.
New definition of land
The exposure draft legislation introduces a new definition of land, which will include anything that is fixed to the land (including resting by its own weight on the land), whether or not it constitutes a fixture at law. It can also include things that are owned separately from the land, such as tenants' fixtures.
Removal of the "just and reasonable" discretion
The current 'just and reasonable' discretion of the Commissioner to exempt an acquisition from duty will be replaced by a much more restrictive concession. The Commissioner will only have a discretion to reduce the duty payable in circumstances where, as a result of an anomalous outcome, the amount of landholder duty payable is greater than the amount of transfer duty otherwise payable had the transaction been a transfer of land.
The new regime includes transitional rules that restrict the application of the new unlimited aggregation period. In summary -
- Any interest acquired in a private unit trust scheme, private company, wholesale unit trust scheme or public unit trust scheme prior to 1 July 2009 will not be aggregated with any interest acquired in those entities on or after 1 July 2012;
- Any interest acquired in a listed company prior to 1 July 2012 will not be aggregated with any interest acquired in the company on or after 1 July 2012;
- Any economic entitlement acquired in a landholder prior to 1 July 2012 will not be aggregated with any economic entitlement acquired in that landholder on or after 1 July 2012; and
- Any aggregated interest in a private unit trust scheme, private company or wholesale unit trust scheme acquired on or after 1 July 2009 will not be subject to duty if no duty would have been charged on that interest prior to 1 July 2012.
However, any interest in a private landholder acquired since 1 July 2009 will be counted in determining whether a significant interest has been acquired, whether or not the pre 1 July 2012 acquisitions where made in a landholder that was land rich.
We recommend that our clients review the potential impact of the new regime on their land holding entities, including the impact of the new aggregation rules and specifically the inclusion of acquisitions made in private landholders since 1 July 2009.
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.