The Victorian government is currently seeking submissions on its
proposed introduction of a landholder duty model to replace the
existing land rich duty as of 1 July 2012. Both the landholder and
land rich models impose duty on acquiring, over a threshold,
interest in landholding entities.
Existing land rich duty
The current land rich duty model imposes duty when an interest
in a 'land rich' entity is acquired. The class of potential 'land
rich' entities is limited to private companies, private unit trust
schemes and wholesale unit trust schemes:
- that hold land in Victoria with an unencumbered value of at
least $1 million; and
- whose landholdings, whether within or outside Australia,
comprise 60% or more of the unencumbered value of all their
assets.
Acquiring, over a period of three years, an interest of 20% or
more in a private unit trust scheme or 50% or more in a private
company or wholesale unit trust scheme will give rise to the duty
liability.
Proposed landholder duty model
Who is affected?
The proposed landholder duty model makes several changes to the
existing land rich duty model. Most significantly, it enlarges the
potential tax base by expanding the class of entities to which the
model applies.
The model achieves this by two methods. First, the class of
taxable landholding entities is increased to include listed
companies and listed unit trust schemes, in addition to those
currently provided for in the land rich duty model. Second, the
proposed model removes the requirement that 60% or more of a
taxable landholding entity's assets must be in the form of
landholdings; providing the entity has land in Victoria with an
unencumbered value of at least $1 million, it will be subject to
the new model.
What constitutes a dutiable acquisition of an
interest?
The proposed model expands the definition of what constitutes an
acquired 'interest', defining it as being the greater of the
following:
- a percentage representing the extent to which a person would be
entitled to participate in a distribution of the property of the
landholder on a winding up (the sole definition under the land rich
duty model);
- a percentage representing the proportion of votes that a person
would be entitled to exercise or control at a general meeting,
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 threshold of interest acquisition that will incur duty will
remain the same for entities provided for under the land rich duty
model; ie 20% in a private unit trust scheme, or 50% in a private
company or a wholesale unit trust scheme. For listed companies or
unit trusts, an acquisition of 90% will constitute a dutiable
acquisition.
Further, the existing three year period in which acquisitions of
interests will be aggregated is to be removed. Under the proposed
model, all acquisitions made by a person (or an associated person)
in a landholding entity - after such an entity first acquired land
in Victoria - are to be aggregated. Duty will only be charged on
those acquisitions occurring within a three year period before the
date of the acquisition that raised the total aggregate to the
appropriate threshold.
Amount of duty
The amount of duty to be charged under the landholder duty model
will be calculated in accordance with the rates applicable to land
transfers. However, landholder duty in listed entities will only be
charged at the rate of one tenth of the general rate of transfer
duty.
Other amendments
The proposed model also brings in other amendments in relation
to defining the term 'fixture', reforming tracing provisions in
determining a landholder's indirect ownership of landholdings and
removing the existing discretion for the Commissioner of State
Revenue to exempt transactions on the grounds that it is just and
reasonable.
Authored by: Michael Kohn and Matt Foley, Cornwall
Stodart