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Land grab Beware of Victoria's new landholder duty provisions

Feature Articles

Cite as: December 2012 86 (12) LIJ, p.40

Collecting more revenue seems to be the main reason for changes to duty on unit and share transfers involving land. (For further comment see the preceding article by Michael Norbury.)

By Kathryn Bertram

On 1 July 2012, the Victorian government introduced a landholder regime into the Duties Act 2000 (Vic). This regime is much wider than the former land rich regime, and significantly broader than any other landholder regime in Australia. The only plausible justification for this is that the government has to plug a gaping hole in its revenue collections. The following commentary outlines some of the key concerns that the LIV’s State Taxes Committee (STC) has with the new regime. It is important that practitioners are aware of these issues, including that landholder duty can in some cases be triggered without any acquisition at all.

Land and significant acquisition thresholds retained

Despite abolishing the land rich ratio, Victoria has retained a land threshold of $1 million for application of the new landholder provisions. This contrasts to the position in New South Wales, Queensland and Western Australia, where the land threshold value was increased to $2 million to ensure the provisions were more revenue neutral.

Likewise, the significant acquisition threshold for acquisitions in private unit trusts (currently 20 per cent) has been retained when all other landholder jurisdictions have increased this threshold to 50 per cent to ensure consistency between private unit trusts and companies.

As a result, more taxpayers will be subject to landholder duty in Victoria than in any other jurisdiction.

Fixtures and other things fixed to land

The new regime includes an extremely wide definition of land: s73.

Tenants’ fixtures are included in the value of land: s73(3). Except where a determination is made by the Commissioner of State Revenue, duty will be assessed on this value even though the landholder does not own the fixtures. Similarly, fixtures owned by third parties (e.g. a financier of an office fit out) will only be excluded from the value of land if the Commissioner makes a determination to do so: s73(5). This means there is potential for landholder and/or transfer duty to apply to the same fixtures multiple times.

Moreover, the regime now extends to things that are fixed to land, which are not necessarily fixtures at common law.

These provisions are deliberately drafted very widely to capture as many transactions as possible. This will result in increased compliance costs for taxpayers, who will need to make private ruling applications if they want certainty as to whether the Commissioner will make a determination in their favour.

It is unfortunate that the government has ignored our calls to introduce clearer and narrower legislation which would produce more certainty and reduce compliance costs.

Economic entitlements

Section 81 introduces the concept of “economic entitlement” into the Duties Act. This is effectively a new head of transfer duty under the guise of landholder duty.

The rules treat a person who acquires a 50 per cent 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 have acquired a significant interest in the private landholder. This will apply even if the economic entitlement is contingent on future events, with duty payable within 30 days of acquiring the entitlement. This means 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 the entitlement never crystallises.

Recently, the Commissioner issued nine public rulings on the landholder provisions. However, none of these rulings relates to economic entitlements. In addition, no guidance or examples were provided in the Explanatory Memorandum to the Bill that introduced these rules. The only guidance taxpayers have received on economic entitlements are two simple examples on the State Revenue Office’s website.

The provisions are draconian and opaque, a difficulty which is compounded by the lack of sufficient guidance on their operation.

Just and reasonable no more

The just and reasonable exemption (contained in former s85(2)) has been removed and replaced with a much narrower concession (s89E) that applies to “anomalous duty outcomes”. The likely reason for this is that, over the past few years, the Commissioner has lost a number of cases as a result of s85(2). Again, the change is out of step with other jurisdictions and is a case of the government shifting the goal posts for taxpayers simply because the courts have not interpreted the former legislation in the manner contended for by the Commissioner.

Listed entities

Under the new regime, dealings in listed entities may now be subject to landholder duty, albeit with a higher relevant acquisition threshold of 90 per cent. However, the Victorian definition of listed company or listed trust is narrower than in other jurisdictions and, for corporations or trusts that are not quoted on the ASX or an equivalent exchange (as defined), it is necessary to obtain a declaration from the Commissioner that the company/trust can be treated as a listed company/trust.

Further, if a relevant acquisition occurs within 12 months of listing, landholder duty will apply at the full ad valorem rate, rather than the concessional rate of 10 per cent of the duty otherwise payable that normally applies for acquisitions of listed entities.

Conclusion

Somewhat disingenuously, the Victorian Treasurer told Parliament that the landholder rules “will make it easier for taxpayers to understand their obligations and reduce compliance costs for taxpayers going forward”.1 The STC believes that this regime will not achieve these outcomes. Instead, taxpayers are more likely to invest in other jurisdictions.



KATHRYN BERTRAM is a senior associate at Corrs Chambers Westgarth Lawyers where she practises predominantly in stamp duty and tax litigation. Kathryn is also a member of the LIV’s State Taxes Committee.

1. Victoria, Parliamentary Debates, Legislative Assembly, 2 May 2012, p2024 (Kim Wells).

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