Practitioners advising on or transferring shares in a private company or units in a unit trust should be alert to potential duty consequences.
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Practitioners advising on or transferring shares in a private company or units in a unit trust should be alert to potential duty consequences.
Landholder duty
The transfer of shares in a company or unit trust which holds an interest in land with a market value of $1 million or more may be a dutiable transaction. This duty is known as ‘landholder duty’.
In general terms, landholder duty can be charged where:
- a company or trustee of a unit trust is a ‘landholder’ under the Duties Act 2000 (the Act) because it holds interests in land, including improvements/items fixed to land, with an unencumbered market value of $1 million or more and
- a person acquires or commences to hold a ‘significant interest’ in the landholder.
Significant interest
A significant interest is:
- 50% or more in the case of private companies,
- 20% or more in the case of private unit trusts
- 90% or more in the case of listed landholders.
These percentage interests can be determined by aggregating interests acquired or held by ‘associated persons’, and under ‘associated transactions’.
Duty may also result from a change in ‘control’ or creation of an ‘economic entitlement’ but these issues are not covered in this article.
Joint and several liability
The landholder and shareholders/unit holders are jointly and severally liable to pay the landholder duty.
| A case example – associated transaction
The Oliver Hume case is a good illustration and example of the practical application of landholder duty. In Oliver Hume, the landholder company was established as a special purpose vehicle for the purposes of property development. It purchased a development property in Diamond Creek and paid duty. After completing due diligence, it circulated an Information Memorandum seeking to raise development funding of $1.8 million. The company received the funding and allocated shares to 18 investors who had applied for them. No duty was paid at the time of allocating the shares, but some years later the Commissioner of State Revenue issued a notice of assessment of duty, plus penalty tax and interest. This assessment was challenged, with the issuing Commissioner, then at VCAT, then at the Court of Appeal. It was upheld each time. The issue in contention was whether the 18 investors’ interests could be aggregated or counted together, as acquired by ‘associated persons’, or in an ‘associated transaction’ under section 78 of the Act. The names and details of the individual investors were unknown to each other and remained confidential. None were therefore regarded as an associated person. But the court concluded that their individual acquisitions nevertheless constituted an associated transaction, because they formed, evidenced, gave effect to, or arose from, substantially ‘one arrangement’, or alternatively ‘one series’ of transactions. The factors the court considered relevant when reaching this conclusion were:
As the individual investors had together acquired a 99.99% interest in the landholder company, a significant interest was found to have been acquired, which constituted a relevant acquisition that attracted landholder duty. Two months after the court gave its judgment, the Commissioner of State Revenue issued ruling no. DA-057v2 to explain further the factors that will be taken into account when determining whether there is an associated transaction. |
Risk management tip
The transfer of interests in a company or unit trust should always trigger the question what land interests does the entity hold and does it meet the threshold of $1m to consider landholder duty.
