State Taxation Acts Amendment Bill 2023
The State Taxation Acts Amendment Bill 2023 was introduced into parliament today.
The Bill includes amendments to the Duties Act 2000 (Vic) and Land Tax Act 2005 (Vic) which provide for the application of those Acts to corporate collective investment vehicles (CCIVs).
The Bill also includes amendments to address various announcements made in the 2023/24 Victorian State Budget that was delivered last week.
The CCIV related amendments in the Bill were not announced as part of the budget measures.
Changes at a glance
The Bill proposes a model for CCIVs which appears to be based on the model that has been adopted for income tax, which is to deem each sub-fund to be a separate trust for tax purposes.
The Bill proposes that, for the purposes of the Duties Act 2000 (Vic) and the Land Tax Act 2005 (Vic), each sub-fund of a CCIV is taken to be a unit trust scheme of which:
- the CCIV is the trustee
- the business, assets and liabilities referable to a sub-fund are the trust property; and
- the members of the sub-fund are the beneficiaries.
For a sub-fund that is taken to be a unit trust scheme under these deeming provisions:
- a share in the CCIV that is referable to that sub-fund is taken to be a unit in the unit trust scheme;
- a shareholder of that share, as a member of that sub-fund, is taken to be a registered unitholder of the unit in the unit trust scheme;
- any rights, entitlements, obligations and other characteristics attaching to that share are taken, as far as practicable, to be the same rights, entitlements, obligations and other characteristics attaching to the unit;
- a winding up of the sub-fund is taken to be a winding up of the unit trust scheme; and
- a person who has an entitlement, whether directly or through another person, to a distribution of property on the winding up of the sub-fund is taken to have the same entitlement as if it were a distribution of property on the winding up of the unit trust scheme.
By deeming each sub-fund to be a separate unit trust, each sub-fund will be subject to the duty (in particular, landholder duty) and land tax rules relating to unit trusts. The CCIV itself would appear to be effectively ignored for duty and land tax purposes.
A CCIV will be taken to be a separate person in its capacity as trustee of each unit trust scheme that is a sub-fund. Consequently, any reallocation of dutiable property from one sub-fund to another sub-fund within the CCIV will be a change in capacity in which a CCIV is taken to hold dutiable property and treated as a dutiable change in beneficial ownership.
It is also intended that the sub-fund (as a deemed unit trust scheme) could then qualify as a public unit trust scheme or apply for registration as a wholesale unit trust scheme, subject to the relevant qualifying criteria being satisfied.
The new rules will take effect from the day on which the amending Act receives Royal Assent.
Legal character of a CCIV
For Corporations Act purposes, a CCIV is a company limited by shares which must have at least one sub-fund.
For income tax purposes, each sub-fund is taken to be a separate trust (specifically, a unit trust) of which the CCIV is the trustee.
Until the introduction of today’s Bill, there have not been any announcements by any states or territories as to whether the statutory fiction that has been created for income tax will be adopted for stamp duty purposes (noting that legislative amendment would be required to achieve this).
What’s the position elsewhere?
It is reasonable to expect other states and territories will closely consider the Victorian model.
Without legislative intervention in a particular state or territory, it is expected that a CCIV would be treated as a single company for stamp duty purposes (consistent with its corporate law treatment) holding assets in its own right and the sub-funds will not be recognised.
For CCIVs that do not invest in land or land-related assets, this is unlikely to give rise to any concerns from a duty perspective. However, for CCIVs that invest in land or land-related assets (through any sub-fund), having the CCIV characterised as a single company raises a number of duty issues.
Adopting a model which treats each sub-fund as a unit trust addresses these issues and puts investors in a CCIV on the same footing for Victorian duty and land tax purposes as a unitholder in a unit trust. This is a sensible model which is worthy of consideration by other states and territories.
The Queensland trust acquisition model raises its own unique issues, which are likely to require more specific consideration.
In Queensland, dealings in unit trusts that invest, directly or indirectly, in any Queensland ‘dutiable property’ are generally subject to ‘trust acquisition’ duty (rather than landholder duty), unless the trust qualifies as a type of ‘public unit trust’. If each sub-fund is to be treated as a separate unit trust, the sub-fund must be capable of qualifying as a public unit trust (subject to meeting the relevant conditions). ‘Translating’ the qualifying criteria for public unit trust status in Queensland so that they work appropriately for a CCIV would need to be worked through. Adopting the income tax approach of deeming each sub-fund to be a separate trust for duty purposes would not assist with characterising the deemed separate trust for Queensland duty purposes as a particular type of public unit trust.