Parties looking to acquire an interest in a company or a unit trust owning land in Western Australia should consider whether duty will apply to the transaction.

The Duties Act 2008 (Duties Act) came into effect on 1 July 2008 and replaced the Stamp Duties Act 1921 (Stamp Act). The Duties Act significantly reforms the treatment of acquisitions of shares in companies and units in unit trusts. The changes under the new regime are accompanied by transitional provisions which manage the transition to the new Act.

The Duties Act appears to simplify the application of duty to transfers of shares in companies and trusts. However, if the transitional provisions apply, the application of the legislation can be convoluted and sometimes result in surprising outcomes.

It is expected that the removal of the requirement for land to comprise 60% of the assets of a company will result in a significant increase in the number of share transfers to which duty applies. Further, it is necessary for these companies to be aware that duty is assessed on both their Western Australian landholding and Western Australian chattels.

The old regime

Under the Stamp Act, a transfer of units was a dutiable transaction (regardless of any landholding of the trust). A transfer of shares was only dutiable if the "land rich provisions" applied to the transaction. The land rich provisions required:

  • a company to hold land in Western Australia worth $1,000,000 or more; and
  • that land to comprise 60% or more of the total assets of the company (some assets were excluded from this calculation to prevent manipulation of the test);

and further:

  • in the case of an unlisted company, more than a 50% interest in the company was acquired or the interest was increased beyond more than 50%; and
  • in the case of a listed company, more than a 90% interest in the company was acquired or the interest was increased beyond 90%.

The new regime

Under the Duties Act, the new "Landholder provisions" require:

  • a company or trust to hold land (directly or indirectly) in Western Australia worth $2,000,000 or more;

and further:

  • in the case of an unlisted company or trust, an acquisition of 50% or more of an interest in the company or trust or the interest being increased beyond 50%; or
  • in the case of a listed company or trust, an acquisition of 90% or more of an interest in the company or trust or the interest is increased beyond 90%.

Duty is assessed on the value of any land holdings and the value of any chattels located in Western Australia (held directly or indirectly through entities in which the head entity holds at least a 20% interest).

Effects of the Duties Act

  • The landholder provisions are applicable to companies and unit trusts on the same basis.
  • The assessment of duty under the Duties Act on an acquisition or issue of units in a unit trust results in a more favourable outcome than the assessment of stamp duty under the Stamp Act. The transfer or issue of units in trusts which do not own land in Western Australia are no longer subject to duty in Western Australia.
  • The threshold interest being acquired has been marginally reduced (i.e. from more than 50% to 50% or more and more than 90% to 90% or more). Although apparently marginal, it is expected that this change will result in an increase in the application of the provisions. For instance, a transfer of a 50% interest in an incorporated joint venture landholder will now be dutiable.
  • The removal of the 60% test will mean that many more companies which held land will be subject to the landholder provisions.
  • The transitional provisions apply so that duty is assessed under the Duties Act if an agreement made prior to 1 July 2008 is completed after 1 July 2008. This can potentially result in an entity being treated as a landholder even though, at the time the agreement was executed, the land rich provisions under the Stamp Act would not have been applicable.
  • If between entering into a contract to acquire shares and completion of that contract, the company becomes a landholder, duty will be payable on the acquisition of the shares. The timing of share acquisitions and entering into contracts to buy land is therefore very important.

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.