this product is unavailable for purchase using a firm account, please log in with a personal account to make this purchase.

Tax issues: Hard landing ahead

Every Issue

Cite as: (2004) 78(10) LIJ, p. 72

Victoria’s “land rich” provisions have evolved from an anti-avoidance provision to a new head of duty.

When the Victorian “land rich” provisions first appeared in Victoria in November 1987, they were very clearly an “anti-avoidance” measure.

Broadly speaking, the intention of the provisions was to “close a significant loophole whereby conveyance duty is avoided through the use of company shares and private unit trusts. It treats the transactions concerned as dutiable transfers of land” (see the Explanatory Memorandum to Taxation Acts Amendment Bill 1987 (Vic)).

The Victorian “land rich” provisions have evolved since their introduction. However, not before the State Taxation Acts (Tax Reform) Act 2004 (Vic) (the Reform Act) have the provisions (now contained in Chapter 3 of the Duties Act 2001 (Vic)) been amended so significantly. The Reform Act amendments to the land rich provisions commence retrospectively from 13 May 2004.

The following brief discussion outlines some of the key changes and makes clear that the land- rich provisions are fast evolving into a broadening of the tax base as a new head of duty, rather than merely as an anti-avoidance provision.

What is a land rich entity?

The threshold test of what constitutes a land rich entity has been broadened. Whereas the land proportion test was previously 80 per cent or more it is now 60 per cent or more, so that a “landholder” (being a private unit trust scheme, a wholesale unit trust scheme or a private company) will be “land rich” if:

(a) it has land holdings in Victoria whose unencumbered value is $1,000,000 or more; and
(b) its land holdings in all places comprise 60 per cent or more of all its eligible property.

When will an acquisition result in a liability for duty?

There has also been a broadening of the acquisition test for a private company or a unit trust that is not a private unit trust. Whereas the acquisition test was previously triggered by the acquisition of an interest of more than 50 per cent, a liability for duty will now be triggered by the acquisition of an interest of 50 per cent or more.

For a private unit trust, the acquisition test has been expanded significantly such that a liability for duty will now be triggered by the acquisition of an interest of 20 per cent or more.

The test for tracing indirect ownership of property through subsidiaries has been reduced from “more than 50 per cent” to “20 per cent or more”. The test will be based on the cumulative percentage interest of each entity.

Can a liability for land rich duty arise where no acquisition has been made?

One of the most radical changes relates to the acquisition of “control”. A liability for land rich duty can arise, notwithstanding that a person has not acquired any units or shares, if the person acquires “control” over a land rich landholder. A person acquires “control” if that person acquires “the capacity to determine or influence the outcome or decisions about the landholder’s financial and operating policies”. Importantly, the provisions do not seem to require the exercise of the capacity to determine or influence the outcome or decisions. In this situation, a liability for duty can arise in respect of 100 per cent of the entity’s landholdings or such other lesser proportion which the Commissioner determines is appropriate.

The “just and reasonable” discretion
As the land rich provisions can potentially apply on an extremely broad basis, the amendments have introduced a discretion in the Commissioner to treat an acquisition of an interest in a landholder as an exempt acquisition if the Commissioner determines that to impose duty would not be “just and reasonable”. The provisions are silent as to the circumstances in which the Commissioner should or would exercise the just and reasonable discretion.

Joint and several liability
The liability for land rich duty is imposed jointly and severally on the person (or persons where acquisitions are aggregated) who makes a relevant acquisition as well as on the landholder (or the trustee of the landholder if the landholder is a trust). As a liability for duty can, for example, arise in the context of a “disqualifying event” (being a circumstance that causes a trust registered with the Victorian Commissioner to cease to meet the criteria for registration, discussed below), it will be important for trustees and responsible entities to pay particular attention to their registers of unitholders, the circumstances of acquisitions and applications to be registered with the Commissioner.

Registration of trusts

A scheme for the registration of specific types of trust has been introduced. Under the registration provisions, the Commissioner can, on receipt of a written application and subject to being satisfied of relevant criteria, register a trust as either:

(a) an “imminent public unit trust scheme”;
(b) a “declared public unit trust scheme”;
(c) a “wholesale unit trust scheme”; or
(d) an “imminent wholesale unit trust scheme”.

Each of these terms is defined.

Provided that the conditions are satisfied within relevant time frames, the acquisition of an interest in a trust which is registered with the Commissioner would not be regarded as being the acquisition of an interest in a private unit trust. Accordingly, the higher acquisition threshold of 50 per cent or more, instead of 20 per cent or more, would apply before a duty liability arises. Failure to satisfy all relevant conditions can, however, result in a “disqualifying event”. This can result in duty being applicable on a retrospective basis.

The “spread test”
The spread test to qualify as a “widely held trust” (which is regarded as a public unit trust) has been tightened significantly. The minimum number of unitholders required to qualify has been increased from 50 to 300.

In addition, there is a further requirement that none of the unitholders (either individually or together with any associated person) can be beneficially entitled to more than 20 per cent of the units in the trust.

General anti-avoidance provisions

Of particular significance is the introduction of a broad general anti-avoidance provision.

In one sense, the inclusion of a general anti-avoidance provision as part of an anti-avoidance regime looks like overkill, but in another it marks the transition to a new head of duty, land rich duty.

The general anti-avoidance provision charges duty on an acquisition in respect of which duty would have been charged “but for a tax avoidance scheme”. A tax avoidance scheme is defined to be a scheme that:


directly or indirectly has tax avoidance as its purpose or effect; or


directly or indirectly has tax avoidance as one of its purposes or effects, if the purpose or effect of tax avoidance is not merely incidental to another purpose or effect of the scheme, whether the scheme had that effect at the time it was entered into or only subsequently.

A “scheme” is also broadly defined and would include oral or written contracts or arrangements, understandings, promises, plans, proposals, actions, courses of conduct (including unilateral conduct) and trusts.

The concept of “tax avoidance” means an elimination or reduction in the liability of a person for land rich duty or a “postponement” in the liability of a person for land rich duty.

Although the explanatory memorandum is clear that the Reform Act “introduces anti-avoidance provisions intended to defer artificial and contrived schemes aimed at avoiding duty on a dutiable transfer or transaction” nowhere in the Duties Act 2000 do these limiting terms actually appear. There is no clear guidance yet from the Commissioner as to the sort of circumstances in which the Commissioner will seek to invoke the new general anti-avoidance provisions.

Obligations on advisers

The Reform Act has also introduced provisions which could extend to impose obligations on those persons (including lawyers and tax advisers) employed or concerned in the preparation of any instrument that effects or evidences a dutiable transaction, or in the provision of advice regarding the form of a transaction.

Despite references in the explanatory memorandum to “knowingly omitted” and “knowingly fails”, the provisions themselves are not so limited and apply on the basis that a person (described above) “must not omit from, or fail to include in, the instrument or in any material presented to the Commissioner any fact or circumstance affecting the liability of any person for duty” under Chapter 3.


On 13 May 2004, state Treasurer John Brumby said that “the rules for calculating the duty on high-value property transactions conducted through private companies and trusts are to be revised in light of current business practices ... the amendments to the land-rich tests will apply from this day”.

Despite the government’s intention that the amendments “comprise the best features” of the land-rich provisions in other Australian jurisdictions, the Victorian changes are complex, technical and much broader in their reach. In fact, the amendments affect a significant expansion of the Victorian tax base, not only because the provisions now apply in a greater number of situations than before, but also because the amendments mark the transition of land rich duty from being an anti-avoidance measure to being a new head of duty.

GEOFF MANN is a partner in the Tax Group of Blake Dawson Waldron, practising in indirect taxes. SUE BOSCH is a senior associate in the Tax Group, practising in state taxes and GST.


Leave message

 Security code
LIV Social