19 Jul 2012

New Victorian Landholder Duty Model results in broadening of Victoria's tax base - Part 1

by John McGuire, Alison Kennedy

The move from a land rich model to a landholder model has broadened the duty base in Victoria with no corresponding trade-off.

The Duties Amendment (Landholder) Act 2012 came into operation on 1 July 2012. It introduces a landholder duty model in lieu of a land rich model in Victoria. While in many respects this has bought Victoria into line with other Australian States and Territories, there are some significant differences.

The Act implements the following key changes to the assessment of duty on acquisitions of interests in landholders in Victoria:

Listed companies and listed unit trust schemes now landholders

In addition to private companies, private unit trust schemes and wholesale unit trust schemes ("private landholders"), listed companies and listed unit trust schemes ("public landholders") are now considered "landholders" if their total land holdings in Victoria have an unencumbered value of $1 million or more.

Accordingly, the acquisition of a relevant interest in a listed company or listed unit trust scheme which is a landholder will now result in the imposition of duty on the person acquiring that interest.

Landholder model instead of land rich model

Before 1 July 2012, a landholder had to:

1. hold land in Victoria with an unencumbered value of $1 million or more; and

2. have total landholdings (whether within or outside of Australia) with a value of at least 60% of the total value of the landholder's assets,

for duty to be assessed on the acquisition of a relevant interest in that landholder.

This meant that the acquisition of a relevant interest in a landholder would only be dutiable if the landholder was "land rich" (ie. the landholder met the 60% threshold test). However, the Act has removed the land rich test. Accordingly, a landholder need now only hold land in Victoria within an unencumbered value of $1 million or more for an acquisition of an interest in it to be potentially subject to duty.

This change has resulted in a broadening of the duty base in Victoria with no corresponding trade-off. While there had been calls to increase the $1 million threshold to $2 million as a means of offsetting the broader tax base, these calls have remained unanswered by the Act.

New acquisition thresholds for public landholders

For the acquisition of an interest in a landholder to be dutiable, there must be a "relevant acquisition" in that landholder. Generally speaking, a "relevant acquisition" occurs if, as a result of a transaction or series of associated transactions, a person (or any associate of that person) acquires an interest in a landholder in excess of the relevant acquisition threshold for that landholder.

All associated transactions are now taken into account for the purposes of determining whether an acquisition threshold has been reached (not just those in any three year period). However, duty is still only assessed on acquisitions made within a three year period.

Acquisition thresholds for private landholders remain unchanged by the Act. They are an acquisition of an interest of:

  • 20% or more in a private unit trust scheme; and
  • 50% or more in a wholesale unit trust scheme or private company.

Given that listed companies and listed unit trust schemes can now be landholders, it was necessary for the Act to prescribe new acquisition thresholds for those landholders. Accordingly, the acquisition of an interest of 90% or more in a public landholder will now constitute a "relevant acquisition" for the purposes of assessing duty.

It is worthwhile to note that, although many other Australian States and Territories have adopted a landholder duty model, most of those States and Territories have legislated to introduce a 50% across the board acquisition threshold for private landholders (the Australian Capital Territory being the only exception). It is unclear why an increased threshold was not applied for private unit trust schemes in Victoria to offset the broader duty base that now exists as a result of the passing of the Act.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.