The Victorian Government has released an exposure draft of the Duties Amendment (Landholder) Bill 2012 (Vic) (Bill), to introduce a new Victorian landholder duty regime to take effect from 1 July 2012. The Bill generally accords with the model outlined in a Consultation Paper published in September 2011, however there are some notable differences in relation to the phase-in of duty, economic entitlements and entity conversions.
The move from a land rich duty regime to a landholder duty regime reflects a trend across all Australian states and territories, with South Australia and Queensland both having changed to the landholder model from 1 July 2011, and following Victoria's move the only state with a land rich model will be Tasmania.
The key features of the Bill are as follows:
- Landholder duty will apply if:
- an entity acquires (together with its associates, and other entities which acquire in associated transactions) a 'significant interest' in a 'landholder'; or
- an entity (together with its associates) acquires an 'economic entitlement' of 50 per cent or more in a 'landholder'. This concept was not included in the September 2011 Consultation Paper, nor is it present in the landholder duty regime of any other state or territory.
- An entity will be a 'landholder' where it has landholdings in Victoria with an unencumbered value of AUD$1m or more, but the amount of duty charged is phased in from nil to the full amount 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 (which is a listed trust, widely held trust or registered public unit trust).
- The 'significant interest' threshold is:
- for listed companies and public unit trusts, 90 per cent or more, but landholder duty will be charged at only 10 per cent of the standard rate of transfer duty (to qualify for this concessional rate, listed companies, listed trusts and widely held trusts must have had such status for at least 12 months);
- for private companies and wholesale unit trusts, 50 per cent or more; and
- for private unit trusts, 20 per cent or more.
- All interests will be aggregated when determining whether a 'significant interest' has been acquired in a landholder, although duty will only be charged on acquisitions made in the last three years. By contrast, the current provisions aggregate only interests acquired in the last three years when assessing whether a significant interest is acquired.
- An 'economic entitlement' includes 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. It appears that the provisions potentially apply to profit sharing arrangements under land development agreements.
- 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 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 be treated as if it were an acquisition of a 100 per cent interest. However, the duty payable on the conversion will be 10 per cent of the duty that would otherwise be payable.
The following interests will not be aggregated for purposes of determining whether landholder duty is triggered:
- 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.
Also, 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 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'.
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.