Victoria's new landholder duty regime is a
transparent grab for cash that will squeeze the profits of property
developers and may deter investment in Victoria.
Under what is effectively a new head of transfer duty,
developers who share in the profits of a property development are
now liable to pay stamp duty, even if they never acquire shares or
units in the landholder.
Introduced in July this year, Victoria's new landholder duty
regime is earning a dubious reputation as the most onerous
landholder regime in Australia. It is much wider than the
State's former land rich regime, with more transactions being
subject to duty than in any other state or territory.
The biggest area of concern is the introduction of the new
"economic entitlement" concept. The new rules treat a
person who acquires a 50% or greater entitlement to dividends,
income, rents or profits, capital growth or proceeds of sale of the
landholdings of a private landholder as if they acquired a
significant interest in the private landholder.
This will apply even if the economic entitlement is contingent
on future events (such as the sale of property for a specific
minimum amount), with duty payable on the interest in the
underlying land within 30 days of acquiring the entitlement. To
comply, taxpayers will need to obtain costly valuations to value
(and pay duty on) an economic entitlement that may never eventuate,
with no clear entitlement to a refund if it fails to
While the State Revenue Office is charged with administering the
landholder regime, it has offered little guidance to help taxpayers
understand their obligations, save for two simple examples on the
One of the SRO's examples involves a property developer
agreeing to undertake a development of land on behalf of the land
owner. Part of the developer's remuneration includes a right to
a share of the profits generated by the project. Previously these
arrangements would not have been caught by the landholder rules as
no shares or units in a landholder are ever acquired.
These types of profit sharing arrangements between property
developers and land owners are common and clearly are being
targeted by the 'economic entitlement' rules. It's also
likely the rules will capture some transactions unintentionally due
to their being drafted in very broad terms. For example, it could
potentially apply to a situation where an estate agent is
remunerated by reference to the rental income derived from a
This is not the first time the Victorian Government has
introduced broad provisions and left them to the SRO to interpret
and administer. The same approach was used in the 2008 lease duty
The lack of timely guidance at the time the provisions commence
creates considerable uncertainty. More significantly, as seen in
the case of lease duty, the SRO's interpretations are not
always consistent with the plain words of the legislation.
Therefore, while the rulings give taxpayers insight as to how the
SRO sees the rules working, it is not necessarily the case that a
Court would take the same view.
It will be some time before we see the full effects of
Victoria's new landholder regime. Certainly, it is a bold
experiment in testing just how far a state government can go in
levying economic activity before that activity finds another
location. No doubt the other states will be closely watching as
this story unfolds.
In the short term, the economic entitlement provisions will
compel developers and landholders in Victoria to rethink project
structures, and potentially factor in increased stamp duty into
their deals. Let's hope that profits are not squeezed to the
point that it is no longer viable to undertake property development
projects in Victoria, leading developers to look elsewhere.
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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