Following in the footsteps of most other States and Territories in Australia, Victoria announced in the 2011-2012 State Budget that it intended to adopt in its Duties Act a landholder duty model in place of the landrich regime. On 12 September 2011, the first details of the proposed model were released through a Consultation Paper available at the State Revenue Office's website www.sro.vic.gov.au.
This Paper reveals an intention to adopt a landholder model which is different in some significant respects to that adopted in other States and Territories. Disappointingly, there is to be a broadening of the tax base without the quid pro quo of a relaxation of the duty thresholds.
The proposed new regime is to commence on 1 July 2012.
At this stage, there is no draft legislation and the Victorian State Revenue Office is seeking written submissions by 5 pm Friday 30 September 2011 regarding the features of the proposed model.
The key points of the proposed model are set out below:
- The most important change to the rules relating to acquisitions of interests in land-owning entities is that the 60% landrich test will be removed.
- All that will be required for landholder duty to become relevant is an acquisition of a significant interest in an entity that has Victorian "landholdings" with an unencumbered value of at least $1 million. This substantially broadens the tax base as many companies and trusts which would not consider themselves as being in the property industry could be caught. One would have expected that as one quid pro quo for removing the 60% threshold, the $1 million land value threshold would have been increased to $2 million improved value. Adopting a $2 million improved value threshold would be seen as a positive step towards harmonising the stamp duty laws across Victoria and New South Wales.
- Duty will be calculated on the unencumbered value of all landholdings and fixtures directly or indirectly held (through a 20% rather than 50% tracing provision – applicable to all landholders) as at the date of the relevant acquisition. Again this is inconsistent with most other States and Territories. It has the effect of requiring investigation of entities which are not subsidiaries of the entity in question.
- There will be a new definition of "fixtures" with the aim of taxing anything which is attached to land, regardless of whether it would be a "fixture" under common law. This proposed change will leave little scope to argue that a particular piece of plant and equipment is not a "fixture" and therefore should be excluded from the value of land. It also means that ownership is not the deciding factor. Duty could be paid by reference to assets owned by a third party such as a tenant. For this reason, it is surprising that Victoria has chosen to include a broad definition of "fixtures" rather than to adopt the New South Wales, South Australia and Western Australian approach of levying duty on the value of land and any chattels owned by the landholder (regardless of whether the chattels are affixed to the land or not).
- The proposed landholder duty will apply to private entities, wholesale unit trusts and also to listed entities. The exemption for public unit trust schemes (such as widely held but not listed unit trusts) is under review.
- The acquisition thresholds under the existing landrich duty regime have been maintained so that landholder duty will be triggered upon the acquisition of:
- a 20% or greater interest in a private unit trust. ACT is the only other jurisdiction which has a 20% acquisition threshold for landholder duty and it has this threshold for historical reasons. All other jurisdictions (other than Queensland which has an entirely different taxing regime for private unit trusts) have a 50% threshold;
- a 50% or greater interest in private companies and wholesale unit trust schemes (this remains the same as under the existing landrich duty provisions); and
- a 90% or greater interest in listed landholders (listed entities are presently not subject to landrich duty).
- Similar to New South Wales, duty on listed landholder acquisitions will be calculated on only 10% of the general rate of transfer duty.
- Under the existing landrich duty regime, a person has an "interest" in a landrich landholder if the person has an entitlement to a distribution of property on a winding up of the landholder. Under the proposed landholder model, there is a new broader concept of "interest" which adopts a three-pronged approach. "Interest" will be 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 property of the landholder on a 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 they all exercise 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.
This three-pronged concept of "interest" means that persons who are not shareholders or unitholders may acquire an interest for landholder duty purposes and may become liable for landholder duty if, for example, they become entitled to distributions of income under a commercial arrangement such as under a joint venture agreement.
Additionally, despite their ambiguity, the provisions relating to how an interest may be acquired through a change of control are being retained.
- The existing discretion allowing for "just and reasonable" relief will be dropped. In New South Wales, this allows the Commissioner to have a free hand to reduce liability to duty where the Act has unintended consequences (eg. double duty situations).
- The rules relating to quarantining will change so that all interests held in a landholder will be taken into account in working out whether a significant interest in a landholder has been acquired. However, it is proposed that duty will only be payable on interests acquired within a three year period.
Some further comments
The proposed Victorian landholder duty model can be seen as a significant broadening of the current landrich duty base. In particular, it is disappointing to see that despite removing the 60% test, the minimum acquisition threshold for the duty to apply was not increased to 50%, thereby bringing the Victorian provisions in line with New South Wales and other jurisdictions.
This increase to a 50% threshold was seen in other States such as New South Wales as the quid pro quo for removing the 60% test and imposing duty on acquisitions of interests in listed entities. It also enabled the Duties Act to be simplified by removal of the separate 50% threshold for wholesale unit trusts. The net effect of the introduction of the model is that, all other things being equal, it should raise more revenue.
The Victorian State Revenue Office has invited public comments and submissions on the Consultation Paper and we encourage clients to write to the Policy & Legislation Branch requesting that the proposed Victorian landholder duty model be aligned with New South Wales in terms at least of having a 50% threshold acquisition test for private unit trusts, a 50% linked entity tracing test and the same treatment of fixtures. The broad principle of harmonisation of stamp duties laws between States and Territories, which drove the stamp duty rewrites of the 1990s, demands nothing less.