On 8 September 2011, the Victorian State Revenue Office released a Consultation Paper on the Victorian Government’s preferred design of the new landholder duty model.
The Government previously announced in the 2011-2012 Budget that the current land rich duty regime would be replaced by a landholder duty model with effect from 1 July 2012 (see our May legal update: ‘Changes to Victorian land rich duty announced in State Budget’).
Proposed ‘landholder’ model
The Consultation Paper outlines the following key design features of the proposed landholder model:
- Landholder duty will apply where there is a ‘relevant acquisition’ in a ‘landholder’.
- A relevant entity will be a ‘landholder’ where it has landholdings in Victoria with an unencumbered value of AUD$1 million or more (this compares unfavourably to the AUD$2 million threshold adopted by some other States). The 60 per cent land rich ratio threshold that exists under the current land rich provisions will be removed, meaning the provisions will have application to a wider range of entities.
- In addition to private companies and private unit trusts, listed companies and listed unit trusts will also be subject to the new landholder regime. An acquisition of an ‘interest’ of 90 per cent or more in a listed company or listed unit trust scheme will constitute a ‘relevant acquisition’. Landholder duty for listed entities will however be charged at a concessional rate of 10 per cent of the standard rate of transfer duty.
- The ‘relevant acquisition’ thresholds under the current land rich regime for private companies (50 per cent or more), wholesale unit trusts (50 per cent or more) and private unit trusts (20 per cent or more) will be retained.
A new definition of ‘interest’ will be adopted, being the greater of the following direct and indirect entitlements:
- a percentage representing the extent to which a person would be entitled to participate in a distribution of the property of the landholder on winding up;
- a percentage representing the proportion of votes that a person would be entitled to exercise or control at a general meeting of shareholders or unitholders assuming that all shareholders or unitholders exercised their voting rights; and
- a percentage representing the extent to which a person is entitled to the economic interests of the landholder, including dividends or distributions of income.
- The landholder regime will retain the 20 per cent tracing threshold test used to attribute indirect landholdings to an entity.
- All interests (except interests acquired before the landholder acquired land in Victoria) will be aggregated when determining whether a ‘relevant acquisition’ has been made in a landholder. Only interests acquired within a 3 year period are aggregated under the current land rich provisions.
- All of the existing exemptions will be available under the new landholder regime, except for the Commissioner’s discretion to exempt a transaction on the basis that it would not be just and reasonable to impose duty.
- A definition of ‘fixtures’ will be included by expanding the concept of a ‘landholding’ to include any item affixed to the land, irrespective of whether such item would be regarded as a fixture at common law.
- Duty will not be charged on ‘goods’ (as is the case in some other States).
- The trust conversion provisions (public to private and vice versa), the trust registration provisions and the widely held trust provisions have all been slated for review.
All other States and Territories of Australia (except Tasmania) now have a landholder duty model, and therefore these proposed amendments will ensure that Victoria now conforms with the national scheme regarding this head of duty.
The Government has invited the public to make written submissions and comments on the proposed landholder model. Submissions must be made by Friday 30 September 2011.
The State Revenue Office and the Department of Treasury and Finance will undertake further discussions in October 2011 with those stakeholders who have lodged submissions.
A report on the consultation process will be provided to the Government by early November 2011, with draft legislation to be released in early April 2012.
What do the proposed changes mean for you?
Broadly, the proposed landholder model provides few if any concessions to taxpayers. If you are contemplating a transaction or dealing in shares in a company or units in a unit trust that holds land in Victoria with an unencumbered value of AUD$1 million or more, it may be preferable to undertake the transaction before 1 July 2012 (under the land rich provisions).