Changes to Queensland’s land rich duty regime have been announced by Queensland Treasurer, Andrew Fraser. In short, the current land rich duty regime will be replaced by new landholder rules, with the new rules coming into effect from 1 July 2011.
What are the differences?
Currently, land rich duty applies to the acquisition of a majority interest (an interest exceeding 50%) in a company that has $1m or more of land in Queensland. Additionally, the land must comprise at least 60% of the value of all property or assets of the company. However, the new landholder model, although increasing the threshold value to $2 million effectively eliminates the 60% threshold. An overview of the differences between the land rich duty regime and landholder duty model is provided below:
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How will this impact upon clients?
From a practical perspective, the changes may result in an increasing number of persons becoming liable to pay duty, who were not liable to do so under the old regime.
A Practical Example
Mike acquires 50% of the shares in XYZ Pty Ltd. The company owns $2.5 million of land in Queensland, and the company has total assets of $12 million.
Implications under the land rich duty regime
Under the previous land rich duty regime, Mike would not be liable to pay land rich duty as the land value is less than 60% of the total value of the property of the company.
Implications under the new system
Under the new landholder duty model, given that the 60% threshold requirement is removed, Mike would be liable to pay land rich duty on the acquisition (of approximately $51,300).
An uncertain future
There are a number of issues which are still yet to be clarified in respect of the new landholder duty model, including:
- the treatment of contracts entered into prior to 1 July 2011 and whether transitional relief is available; and
- whether landholder duty will be extended beyond the value of land and include the value of a company’s goods, which has been the case in some jurisdictions.
What to do?
Although the treatment of contracts entered into prior to 1 July 2011 is still unclear, if clients are considering undertaking a restructure or transaction, consideration should be given to whether it would be advantageous to implement the restructure prior to 1 July 2011.