In general terms landholder duty is payable where a person makes a relevant acquisition in a company or unit trust that is a landholder.

For the purposes of these provisions, a beneficiary of a discretionary trust is taken to own or to be otherwise entitled to the property the subject of the trust. A person is a beneficiary of a discretionary trust if that person is a person or a member of a class of persons in whose favour, by the terms of a discretionary trust, capital the subject of the trust may be applied in the event of the exercise of a power or discretion in favour of the person or class or in the event that a discretion conferred under the trust is not exercised. Thus if a discretionary trust owns land, every person who is a beneficiary of the trust, is taken to own the land.

There is a provision that the Chief Commissioner may, if satisfied that the application of the landholder duty provisions to an acquisition in a particular case would not be just and reasonable grant a full exemption in respect of the acquisition, or grant a partial exemption in respect of the acquisition.

In a recent case before the NSW Supreme Court, a discretionary trust (Trust) was a landholder. Mrs X controlled the trustee of Trust. Company A was a beneficiary of the discretionary trust and therefore was taken to own or to be otherwise entitled to the property the subject of the Trust. Company B which was a company controlled by Mrs X made a relevant acquisition of shares in Company B. Landholder duty was therefore payable if the Chief Commissioner did not exercise his discretion under the above provision to grant an exemption.

The argument for the exercise of the Chief Commissioner’s discretion was as follows:

  • The purpose of the landholder duty provisions is to charge duty on the acquisition of beneficial or economic ownership of land through acquisitions of marketable securities at the general rate applicable to transfers of interest in land rather than to charge a lesser amount of duty or no duty at all.
  • The dispensing power of the Chief Commissioner should be exercised where there was no intent to avoid duty and where the relevant acquisition of shares in Company A would have no practical consequence to the way in which the land held by the trustee of Trust would be appointed or enjoyed.
  • Mrs X controlled the trustee, the appointor and the guardian of Trust and therefore could control the disposition of the trust assets.
  • Therefore Mrs X did not need to control Company A in order to control the disposition of the trust assets and in any event she already had control of Company A.
  • The provision that deems a discretionary object of a discretionary trust to own or otherwise be entitled to the property the subject of the trust was an anti-avoidance measure to deal with a situation whereby a person, without acquiring any interest in the land, might, by acquiring a “significant interest” in a discretionary object, achieve the economic benefits of ownership of land held by the trustee, as by an arrangement whereby the trustee would exercise the power to appoint income or capital to discretionary object but this was not the case here.

Company B applied for the exercise of the Commissioner’s discretion under the above provision for the relevant acquisition in Company A by Company B to be exempt from duty. However although the Commissioner exercised his discretion to ensure that only one entity was to be taken to be entitled to the land of the discretionary trust. The Commissioner otherwise decided not to grant an exemption in respect of the acquisition by Company B of shares of in Company A.

The Court agreed with the taxpayer’s argument that the provision that deems a discretionary object of a discretionary trust to own or otherwise be entitled to the property the subject of the trust was an anti-avoidance measure to deal with a situation whereby a person, without acquiring any interest in the land, might, by acquiring a “significant interest” in a discretionary object, achieve the economic benefits of ownership of land held by the trustee, as by an arrangement whereby the trustee would exercise the power to appoint income or capital to discretionary object but this was not the case here.

The Court said that in relation to the exercise of the discretion by the Chief Commissioner, the question is whether it was not just and reasonable that the landholder duty provisions apply to the acquisition by Company B of the shares in Company A where Company A as a matter of fact did not own or control the land, or have any expectation of receiving the land or any proceeds of sale of any part of the land, or any income from it. The question was to be assessed against the background that Company A’s position as a discretionary object of Trust was irrelevant to Company B’s acquisition of the shares in Company A. Mrs X already controlled Trust and therefore did not need the shares that were acquired by Company B in Company A to control Trust.

In those circumstances the Court considered that it was not just and reasonable that the landholder duty provisions should apply to the acquisition and that therefore the Chief Commissioner should have exercised his discretion to exempt the transaction from landholder duty.