"Land-rich" duty to be replaced with "landholder" duty model

Last week's 2011/2012 Victorian State Budget announcements have signalled a change to tax provisions relating to transfers of ownership or control of entities which hold land.

Current model

Under the current model, an entity is "land-rich" if:

  • it has landholdings in Victoria with a value of A$1 million or more;
  • all of its landholdings (wherever located) comprise 60% or more of the total value of its assets; and
  • it is a Victorian private company, a private unit trust scheme or a wholesale unit trust scheme.

If an interest in a large share of a "land-rich" entity is acquired in certain ways (through a purchase, for example), stamp duty is imposed in respect of the transaction. This "land-rich" duty operates as a tax on the indirect purchase of land.

New model

The Budget announcement has foreshadowed the adoption of a new "landholder" duty model to replace the current model, and anticipated to commence on 1 July 2012.

The Victorian Government is seeking to ensure that the stamp duty base is widened by:

  • altering restrictions on which entities the duty will relate to; and 
  • imposing the new landholding duty on transactions which give effect to changes in ownership or control of entities holding land.

No further details of the proposal were specified, but it is likely that Victoria will mirror the recent changes made around the country, resulting in:

  • abolition of the 60% threshold requirement for "land-rich" entities; and 
  • reliance on a threshold landholding value (which is yet to be announced) as a key trigger for the duty.

If Victoria follows suit with the adoption of the new "landholder" duty model, the level of the threshold landholding value is a key point to watch, as it may move from the current A$1 million level.

Similar landholder duty models have been adopted in Western Australia, New South Wales, the Northern Territory and the Australian Capital Territory, and are pending introduction in South Australia and Queensland. The reform should result in greater national uniformity in this area of law.

Implications of the new model

As the duty criteria will be widened, more transactions are likely to be subject to the new landholder duty.

This has potential implications for those who are likely to acquire interests in the whole or part of any landholding entity on and from 1 July 2012, and should be taken into account when entering into such transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.