The Duties Amendment (Landholder and Corporate Reconstruction and Consolidation) Bill 2016 (Bill) was introduced into the Tasmanian House of Assembly on 17 August 2016. The Bill proposes to:
- in respect of indirect acquisitions of land, change from a 'land-rich' model to a 'landholder' model; and
- provide a statutory regime for corporate reconstruction and consolidation stamp duty exemptions.
The amendments will commence on the day the Bill receives Royal Assent.
While the introduction of corporate reconstruction and consolidation exemptions is to be commended, more certainty could have been provided to businesses by allowing a pre-transaction confirmation process (confirming the application of the exemption to a particular proposed transaction) similar to what exists in all other Australian States and Territories.
What will the changes mean to businesses?
The change from the land-rich model to the landholder model will result in more companies and unit trusts being taken to be a 'landholder'. Where a company (private or listed) or unit trust (private or public) holds, directly or indirectly, Tasmanian land interests valued at $500,000 or more, it will be a 'landholder'. It is no longer necessary to establish that the entity's landholdings comprise 60% or more of the unencumbered value of all its property.
Acquisitions of 50% or more (for private companies and unit trusts) and 90% or more (for listed companies and public unit trusts) may give rise to a liability to landholder duty.
The introduction of corporate reconstruction and consolidation exemptions will provide a full stamp duty exemption on certain transactions between members of the same corporate group and also certain entity impositions between an entity and its security holders. This will allow corporate groups to restructure share and unit holdings within the group, merge and align business operations and interpose a new head or holding entity, without incurring stamp duty.
Change to landholder model
The change in the test from 'land-rich' to 'landholder', coupled with the extension of the scope to acquisitions of interests in public landholders, results in a substantial increase in the tax base.
Central to the operation of the land-rich model was that certain acquisitions in private companies and private unit trust schemes attracted duty only if the entity had landholdings with an unencumbered value of $500,000 or more (threshold value) and its landholdings comprised 60% or more of the unencumbered value of all its property. The Bill proposes to remove the ratio test so that as long as the $500,000 threshold value is met, the entity will be a 'landholder' (there will no longer be the concept of 'land-rich'). Tasmania is the last jurisdiction to change from a land-rich model to a landholder model.
The Bill proposes to extend the scope of the provisions to acquisitions of interests in listed companies and public unit trust schemes that are landholders. All jurisdictions, other than the Australian Capital Territory, impose duty on acquisitions of interests in public landholders.
In the case of a private company or private unit trust, an acquisition of a 50% interest will trigger the landholder duty provisions. The acquisition threshold for listed companies and public unit trust schemes is 90%. Upon an acquisition of a 90% or more interest in a public landholder, the acquirer(s) will be deemed to have acquired a 100% interest in the landholder and duty assessed accordingly. The duty imposed on acquisitions of interests in public landholders is imposed at 10% of the general rate of duty (ie 0.45% instead of 4.5%).
The new provisions also change the way duty is calculated on acquisitions in private landholders – currently there is a 'phasing-in' of duty where the unencumbered value of the landholdings does not exceed $750,000, whereas under the Bill such a discount is no longer available.
The new model is based on the New South Wales landholder model. Similarly to New South Wales, the new model proposes that where an entity is a landholder, duty will be calculated not only on the value of the landholder's landholdings, but also the value of the landholder's goods (other than stock in trade, materials held for use in manufacture, goods under manufacture, livestock, and registered motor vehicles). While the new model includes special provisions which 'look through' acquisitions by bare trustees to the ultimate beneficial owner, they exclude custodians as commonly used (eg custodians for responsible entities, which is in contrast to the more concessionary New South Wales provisions).
The transitional rules relevant to pre-commencement acquisitions provide:
- for private landholders, an acquisition made at any time before the date of commencement of the amendments is counted in determining whether the person has made a relevant acquisition in a landholder and the duty that may be chargeable; and
- for public landholders (ie listed companies and public unit trust schemes), acquisitions made before the commencement date are counted for the purpose of determining whether a person has made a relevant acquisition in a public landholder (ie whether the 90% or more acquisition threshold is exceeded). However, such pre-commencement acquisitions will remain exempt from duty.
Introduction of corporate reconstruction and consolidation exemptions
Currently, Tasmania does not have any statutory duty exemptions for corporate reconstructions and consolidations and instead has an informal exemption process by way of the Treasurer providing ex gratia relief. (The Hon Peter Gutwein MP states in the Second Reading Speech to the Bill that "Historical data suggests that on average around two businesses per year have received a corporate restructure duty 'exemption' [the ex gratia payment].") The Bill provides that duty is not chargeable (ie a full exemption) on certain intra-group transactions involving internal adjustments or changes to the holding of assets within the group upon an exemption being approved by the Commissioner.
The relief is available to relevant members of a corporate group. A 'corporate group' means a parent corporation and a subsidiary of that parent corporation. A parent – subsidiary relationship exists where the parent directly or indirectly owns, other than as trustee, at least 90% of the issued shares, or at least 90% of the units, in another corporation and has voting control over the other corporation. A corporation includes a company and a unit trust scheme.
Transactions eligible for relief include transfers of dutiable property between members of a corporate group, and acquisitions of interests in a landholder that is a relevant acquisition for landholder duty purposes. Similarly to the New South Wales and Victorian provisions, the exemption from landholder duty is limited to circumstances in which the existing interest is acquired from another group member, in contrast to the issue of new shares which is not an eligible transaction.
Consolidation or 'top-hatting' relief will also be available. Such relief, relevant for landholder duty transactions, applies where a corporation is interposed between an existing landholder and its members. Similarly to New South Wales, the exemption is available for transactions involving the top-hatting of a company or unit trust.
A corporate reconstruction or consolidation exemption will only be available if:
- the transaction, or the series of transactions of which the transaction is a part, is undertaken for the purpose of changing the structure of the corporate group, or changing the holding of assets within a corporate group, or both; and
- the transaction, or the series of transactions of which the transaction is a part is not undertaken for a purpose of avoiding or reducing Tasmanian duty on another transaction and is not undertaken for the sole or dominant purpose of avoiding or reducing a liability for tax under any Commonwealth, State or Territory law.
Unlike New South Wales, Tasmania will introduce both a pre-association and post-association test for both the reconstruction and the consolidation exemptions. The pre-association test requires the members to have been members of the corporate group for 12 months before the transaction, or where a member was newly incorporated / newly established, has been a member since its incorporation or establishment, or if the entity has been acquired within 12 months, it has been dormant since its incorporation (shelf company).
The post-association period requires the members remain members of the corporate group for 12 months after the transaction otherwise the exemption will be revoked and the duty will become payable ('clawed-back'). Late payment interest and penalty tax may be imposed in connection with the revocation of the exemption.
Exemptions from claw-back include where the member ceases to be a member of the corporate group because a public float occurs within 12 months after the day on which the transaction occurred; or the shares or units of the member are unstapled to enable the member’s liquidation, deregistration, dissolution or, in the case of a unit trust scheme, winding-up; or its liquidation, deregistration or, in the case of a unit trust scheme, winding-up.
An application for relief can only be made on or after the date of the transaction. (The Tasmanian Commissioner does not issue private rulings.)