Recent legislative anti-avoidance measures have the potential to
unexpectedly catch a wide range of commercial transactions to make
them dutiable at very high rates of duty.
The Victorian Duties Amendment Act 2008 has only just
come into force with retrospective effect from 21 November 2008.
Transactions entered into as a result of development or other
agreements made before that date are subject to the new tax rules
unless the transaction is only a renewal of a lease entered into
before that date.
Sales of businesses
Sales of businesses were never a direct head of liability for
duty. However, sales of businesses that included a sale of freehold
land were indirectly caught by the legislation and duty was
assessed on the consideration other than goodwill, stock-in-trade
and primary production. Sales and transfers of businesses,
franchise agreements and other transactions, such as public private
partnerships, are now directly dutiable if the transaction includes
an assignment of lease for consideration, or the grant of a lease
for consideration other than rent and outgoings. This is despite
the explanation in the legislative explanatory memorandum and the
views expressed by the State Revenue Office.
The rate of duty is the same rate as for a transfer of land.
That rate is 5.5% of the higher of the consideration for the
transaction and the unencumbered freehold value of the land (where
the land exceeds $960,000). Lesser rates apply for lower valued
land. The lease term, may be for as little as one day.
A sale of a local milk bar business for $1000, with only 3
months remaining on a lease, will now cost the purchaser an
additional $52,670 in duty if the landlord's shop is worth
Transfer of shares in certain companies and units in
Transfers of shares in private companies, private unit trust
schemes and wholesale unit trust schemes are now dutiable if the
company or scheme falls within the definition of being "land
rich". A company or scheme is land rich if its unencumbered
land holdings in Victoria exceed $1M or more, or if all its
worldwide land holdings comprise 60% or more of all its property. A
land holder can be deemed to be entitled to the land through a
The rate of duty is the same as that for a transfer of land.
This is only a very brief summary of the legislation and only
seeks to draw attention to some of the main implications of the
legislation. There is considerable detail and other issues which
are not included in this summary. Please see the Hunt & Hunt
e-alert of 7 July 2009 for more detail on some of the issues
affecting lease transactions. Those considering a sale or purchase
of a business, franchise agreement or other transactions involving
leases, sales or purchases of shares or units in a company or
scheme that owns land or is a tenant of land in Victoria; should
obtain detailed legal advice on how the transaction may be affected
by these amendments to the Duties Act.
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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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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