The move from a land rich model to a landholder model has broadened the duty base in Victoria with no corresponding trade-off.
The Duties Amendment (Landholder) Act 2012 came into operation on 1 July 2012. It introduces a landholder duty model in lieu of a land rich model in Victoria. While in many respects this has bought Victoria into line with other Australian States and Territories, there are some significant differences.
Following Part 1 of this article, we look at further key changes implemented by the Act to the assessment of duty on acquisitions of interests in landholders in Victoria:
New categories of interests acquired
Before commencement of the Act, a "relevant acquisition" of an interest in a landholder would only occur, and duty would only be payable, if the acquiring party acquired an entitlement (exceeding the relevant acquisition threshold) to a distribution of property on a winding up of the landholder. On and from 1 July, duty is also payable in certain circumstances if a person acquires:
- an economic entitlement in; or
- control over,
a private landholder (but not a public landholder).
A person will acquire an "economic entitlement" in a private landholder if, together with any associated person, they acquire shares or units, or they enter into an arrangement in relation to, a private landholder under which they are entitled to do all or any of the following:
- participate in the dividends or income of the private landholder;
- participate in the income, rents or profits derived from the land holdings of the private landholder;
- participate in the capital growth of the land holdings of the private landholder;
- participate in the proceeds of sale of the land holdings of the private landholder;
- receive any amount determined by reference to paragraph (a), (b), (c) or (d); or
- acquire any entitlement described in paragraph (a), (b), (c), (d) or (e).
An acquisition of an "economic entitlement" will be dutiable if, on its own, or when aggregated with any associated transaction within a three year period, there is an acquisition of an interest of 50% or more in a private landholder.
Acquisitions of "economic entitlements" are not subject to any other landholder duty regime in Australia and the recent inclusion of this concept in the Act further broadens the duty base in Victoria. Relevantly, the "economic entitlement" provisions will now make entry into many Development and Joint Venture Agreements dutiable. For the first time, this will make entities who are not shareholders or unit holders in a landholding company or trust subject to duty.
A person will acquire control over a private landholder if, within a three-year period, that person acquires the capacity to determine or influence the outcome of decisions about the private landholder's financial and operating policies, taking into account:
- the practical influence the person can exert in addition to any rights the person can enforce; and
- any practice or behaviour affecting the private landholder's financial or operating policies (even if that practice or pattern of behaviour involves the breach of an agreement or a breach of trust).
In those circumstances, the acquiring party will be deemed to have acquired 100% interest in the landholder (or such lesser percentage as the Commissioner considers appropriate in the circumstances).
New rates, and phasing-in, of duty
The rates of duty payable in relation to acquisitions of interests in private landholders remain unchanged by the Act. They are same as the rates applicable to transfers of dutiable property and assessments of duty are calculated by multiplying the unencumbered value of all land holdings of the relevant landholder in Victoria by the interest acquired in the relevant acquisition.
The Act has prescribed concessional rates of duty for acquisitions in public landholders, being 10% of the rates applicable to transfers of dutiable property. However, in some limited instances (for example, where a company or trust has been listed for less than 12 months), the concessional rates of duty do not apply.
The Act has also provided for an increased phasing in of duty for landholders with land holdings in Victoria having a value of between $1 million and $2 million. Previously, this phasing in of duty only applied if the value of a landholder's land holdings in Victoria was between $1 million and $1.5 million.
New definition of fixtures
A new definition of "fixtures" has been inserted by the Act. "Land" now includes "any item affixed to the land, irrespective of whether such item would be regarded as a fixture at common law". The effect of this new definition is that liability for duty can arise, and the quantum of duty payable can increase, as a result of the existence of fixtures that are not owned by a landholder. This is inconsistent with the landholder duty regimes in New South Wales, South Australia and Western Australia which exclude from the definition of "land" fixtures which are not owned by the relevant landholder.
Whilst the Act does provide for certain fixtures to be excluded from the definition of "land" at the discretion of the Commissioner, a fixture must be owned by a person other than the landholder and not used in connection with the landholder's land in order for that exclusion to apply.
Existing tracing provisions have been retained, which require landholdings and fixtures indirectly held by a landholder to be taken into account when determining whether landholder duty is payable. A landholder need only hold a 20% interest in another landholder for its interest in that other landholder's landholdings to be taken into account when determining liability for duty. This differs from other States and Territories where a 50% interest in another landholder is required in order for the tracing provisions to apply.