In most States and Territories stamp duty is usually not payable when the economic benefits associated with land are transferred but there is no transfer of the property itself. However, it's not always black and white. There are circumstances where a stamp duty liability can be triggered as underscored in a recent case in South Australia.
A transfer of, or declaration of trust over, property is generally liable to stamp duty. However, if parties only intend to transfer the economic benefits of holding property, without transferring the property itself or creating a trust, then duty may not be payable. The key issue is where to draw the line in distinguishing between the two.
The Victorian stamp duty legislation seeks specifically to tax acquisitions of economic benefits: see our article setting out the position in Victoria. This is not generally the case in other States and Territories.
Transfers of economic benefits can take a number of forms. For example, a development fee under a development agreement may include a share of the net proceeds for the ultimate sale of a development or there may be a joint venture in which costs and benefits are shared between a developer and land owner.
A fee for service arrangement is not a transfer of property even if the service fee is calculated by reference to the rent or sale proceeds from the land. The simplest example is a real estate agent who is paid a commission calculated on the purchase price on a sale of land or on a percentage of rent for managing a tenant.
While the real estate agent is receiving part of the economic benefit of the income or proceeds of sale, he or she is not receiving a transfer of the property. This principle can be extended to a developer who is paid a fee calculated by reference to the net proceeds of sale of a property or a number of properties for developing the land.
Care must be taken in formulating arrangements and drafting of documentation if the commercial intention is to transfer economic benefits associated with land but not to transfer the property or create a trust. The arrangements must be contractual only and not deal with interests in property. Two recent cases highlight both the opportunities and challenges and the specific principles which must be taken into account.
The cases sit in contrast to one another. The decision of the South Australian Supreme Court in Pharmos Nominees Pty Ltd v Commissioner of State Taxation  SASCFC 89 emphasises the challenges and risks in transferring economic benefits.
Commercial land was held in a discretionary trust and the parties intended to transfer the economic benefits of the land, but they did so by having the 'purchaser' acquire rights as a beneficiary of a trust, which are more than contractual in nature. The key mechanism was the issue of an 'equity bond' by the trustee to the 'purchaser' as beneficiary giving it rights in priority to all other beneficiaries, to capital and income from the trust property up to a maximum amount. It was difficult to argue that the equity bond was merely contractual because it was a right of a beneficiary as against a trustee – not a contract by a supplier of services and not a loan. There was no service, no interest or any amount repayable.
The arrangement considered by the Supreme Court of New South Wales in Panthers Investment Corporation Pty Ltd v Chief Commissioner of State Revenue  NSWSC 25 was very different. For one thing the Commissioner was arguing that there was no trust created (albeit in the context of resisting the application of a land tax exemption). In essence, the arrangement was a joint venture with a developer involving a sharing of development costs and profit subject to Panthers receiving a credit for an amount equal to the unimproved value of the land. The issue was that Panthers was not the owner of the land but the owners granted to Panthers 'full economic benefits' of the land for the purpose of developing it. This included occupation, possession, rents, profits, obligations and liabilities and the credit for the agreed land value.
However, the key features in the arrangement that negatived any trust were as follows:
- Panthers was entitled to possession of the land but crucially it had a lease for which rent was payable and did not have to rely on any trust;
- The economic benefits did not include the rent payable to the land owners; and
- The agreements had specific provisions negativing any trust and anything other than a contractual relationship.
The key message from these contrasting cases is that the specific nature of the arrangement is critical. Taxpayers should also be mindful of general anti-avoidance provisions and provisions in the Victorian duty legislation specifically targeting economic benefits in relation to land.
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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