The Victorian State Revenue Office has released a consultation
paper on 8 September 2011 detailing the proposed changes to the
Victorian land rich duty provisions.
The proposed changes represent a shift from the current land rich
duty model to a landholder duty model and are due to come into
effect from 1 July 2012.
The move to a landholder duty model mirrors the recent changes in
other States and Territories (excluding Tasmania) and the State
Government believes these measures will provide a simpler,
efficient process. However, in our view, the proposed new
landholder model does not address the complications in the current
model and instead significantly broadens the number of transactions
that will be subject to stamp duty thus providing increased revenue
for the State Government.
Furthermore, if this proposed model is adopted, Victoria's
landholder model will be the most unfavourable in comparison with
other states such as NSW, Queensland and Western Australia.
Background – the current land rich model
The current Victorian land rich duty provisions broadly operate
to levy duty at land transfer rates on the acquisition of
significant interests in 'land rich' private companies,
private unit trust schemes or wholesale unit trust schemes. A
significant interest is an interest of 20% or more for private unit
trusts and 50% or more for the remaining entities. Entities
are considered to be land rich where the total land holdings in
Victoria exceeds $1 million or more in value and represents 60% or
more of the total value of the assets held by the
entity.
Proposed Changes – the proposed landholder model
Outlined below are the proposed changes to be adopted under the
landholder model. All of the changes will result in the broadening
of the application of the duty provisions which will result in
taxpayers paying significantly more stamp duty than under the
current model.
- Extension of Taxable Entities
It is proposed that the landholding entities will be extended to include listed companies and listed unit trust schemes. The rate of duty for these entities will be 10% of the general rate of transfer duty.
- Maintenance of Land Value Threshold
The current land holdings value threshold of $1 million or more will remain unchanged.
By contrast the land value threshold in NSW is $2 million in unimproved value. Queensland and Western Australia also provide a threshold of $2 million of the market value of land.
- Removal of Land Rich Ratio
It is proposed that the 60% landholding threshold test (i.e. land holdings must represent at least 60% of total assets) be removed. Hence, it will no longer be relevant if land is only a significant asset in comparison with the entity's remaining assets.
Whilst the removal of the land rich ratio is consistent with other jurisdictions, the other landholder duty models include other compensatory measures (i.e. an increased significant interest % threshold) which are not reflected in the Victorian model.
- Extension of Relevant Interest Definition
Currently, in order to be subject to the land rich duty provisions, the taxpayer had to be acquiring an interest which provided them with an entitlement to a distribution of property at winding up.
Under the proposed model, the definition of interest is to be extended to be the greater of:
a) entitlement to a distribution of property at winding up;
b) casting of votes at a general meeting; and
c) entitlement to economic interests, including dividends or distributions of income
The revised definition of interest will undoubtedly result in more taxpayers having an interest in a land rich entity.
It is noted that South Australia is the only other jurisdiction that includes such an expansive interest definition.
- Maintenance of Acquisition Thresholds
It is proposed that the acquisition thresholds be maintained at 20% for unlisted trust schemes and 50% for private companies and wholesale unit trusts. A threshold of 90% will be introduced for listed entities.
This is again a significant difference in the Victorian model against other jurisdictions (excluding the Australian Capital Territory), which all provide a 50% acquisition threshold for unlisted trust schemes as well as for private companies and wholesale unit trusts.
- Extending the three year time frame for aggregation of
interests
Currently, in determining whether the taxpayer acquires a significant interest in the land rich entity, any interest acquired by the taxpayer within 3 years preceding the acquisition of the interest will be aggregated with the interest acquired on the particular transaction in question.
Under the proposed model, the 3 year time cap will be removed and hence any interest acquired by the taxpayer in preceding years will be aggregated with the interest acquired on the particular transaction in question. However, it is noted that duty will only be charged on those acquisitions occurring within the three year period.
This will also result in the broadening of the application of the provisions. For example, if the taxpayer acquired an interest of 5% in 2000, 10% in 2009 and is planning to acquire 7% in October 2012 in a private unit trust, under the previous law, they would not be acquiring a significant interest in October (their aggregated interest would be 17%). However, under the proposed model, they would be acquiring a significant interest in October 2012 (their aggregated interest would be 22%). Hence, they would be subject to stamp duty on 17% of the land value held in the Trust.
Recommended Action
The proposed landholder duty model, in its current form, will
result in a significant broadening of the tax base meaning that
more entities will be subject to landholder duty. This will
impose a considerable burden on investors and leave Victoria at a
comparative disadvantage to most other states.
Moore Stephens will be engaged in the submission process and will
ensure that these views are expressed. Moore Stephens highly
recommends that all affected parties make a submission or provide
your comments to us to ensure that this proposal does not get
legislated in its current form. For further information please
contact Stephen O'Flynn on (03 8635 1800) or your Moore
Stephens Relationship Partner.
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