As announced by the Victorian Treasurer in the State Budget, the land rich duty provisions of the Duties Act 2000 will be changed into a ‘landholder duty’ model from 1 July 2012.  The State Revenue Office has released a consultation paper on the proposed landholder duty model for Victoria.

The proposed landholder duty model will boost Victoria’s tax base by increasing the number of companies and unit trusts that are ‘landholders’.  Companies and unit trusts with insignificant real estate assets but substantial fixed plant and equipment will fall within the landholder duty provisions.  The Treasurer is expecting to raise additional revenue of $50 million to $75 million a year.

The proposed changes will affect anyone acquiring or restructuring equity or debt interests in any company or unit trust from 1 July 2012.

What will change with the landholder duty model?

Presently, the land rich duty provisions apply to a private company, private unit trust scheme or wholesale unit trust scheme that directly or indirectly owns land in Victoria worth $1 million or more and the value of its landholdings everywhere comprise at least 60% of the total value of its property.  A liability for land rich duty arises when a person makes a ‘relevant acquisition’ in the land rich landholder.  Generally, a relevant acquisition is an acquisition of at least a 20% interest in a private unit trust scheme or at least a 50% interest in a private company or wholesale unit trust scheme.

The proposed changes to be introduced by the landholder duty model are as follows:

  • Landholder entities will include listed companies and unit trust schemes.  Duty will be imposed on an acquisition of 90% or more in a listed company or listed unit trust scheme at 10% of the general rate of transfer duty (viz. 0.55%).
  • The 60% land ratio test will be removed so that the landholder duty provisions will apply to any company or unit trust scheme with a direct or indirect interest in land in Victoria worth at least $1 million.
  • The definition of ‘interest’ in a landholder will be expanded to include the greater of the direct and indirect entitlements to distributions of property of the landholder on a winding up, voting rights at a general meeting of the landholder and economic interests in the landholder (such as dividends or distributions of income).
  • A definition of ‘fixture’ will be introduced to include anything fixed to the land irrespective of whether it would be regarded a fixture under general law.  Landholder duty will be imposed on the value of Victorian land, fixtures and anything else fixed to the land.
  • Indirect ownership of Victorian land will be traced through listed companies and listed unit trusts.
  • The three year limitation on the aggregation of interests in a landholder will be removed so that every acquisition in a landholder (except acquisitions made before the landholder acquired land in Victoria) will be counted to determine whether the acquisition threshold is exceeded.  However, duty will only be imposed on those acquisitions made within the preceding three year period.

Removal of the Commissioner’s discretion to exempt an acquisition from duty if it would not be just and reasonable to impose it.

Land rich duty provisions to continue

The features of the land rich duty provisions that will be retained include the following:

  • the land value threshold of $1 million;
  • the acquisition threshold of 20% for private unit trust schemes and 50% for private companies and wholesale unit trust schemes;
  • the tracing threshold of 20% for determining the indirect ownership of land through linked entities;
  • landholder duty will not be imposed on the value of goods (but only if they are not ‘fixtures’ under the proposed definition);
  • the manner in which an interest in a landholder can be acquired, including acquiring control over a landholder;
  • the wholesale unit trust registration provisions; and
  • the general anti-avoidance provisions.

The current provisions dealing with the conversion of trusts (public to private and private to public) and the registration of imminent and declared public unit trust schemes and the widely held trust provisions are under review.

As the landholder duty model is subject to on-going consultation, we will provide a further update once draft legislation is released publicly.