The Victorian Duties Act (2000) imposes duty on any purchase of an interest in a “land rich entity.”
There are wide “constructive ownership” rules that establish when an entity is land rich and the amount of duty, which is payable upon the acquisition of an interest in such an entity.
Land-rich duty seeks to circumvent avoidance of duty by parties transferring interests in land-rich entities, such as unlisted companies and unit trusts instead of transferring the land itself and paying the appropriate duty.
LAND RICH ENTITY
Land Rich Duty applies to transfer of shares in a private company or interests in a private trust (usually a fixed trust) if the entity is a “Land Rich Entity,” which must have:
THE NEW MODEL – "LANDHOLDER DUTY"
Victoria replaced the Land Rich Duty provisions with a Landholder Duty Model on 1 July 2012.
The transition from a land rich to a landholder duty removes the land rich ratio test that currently needs to be satisfied for the land rich duty provisions to apply to an acquisition of an interest in a company or trust. In addition, the landholder model includes listed companies and listed unit trust schemes as taxable entities.
CONSEQUENCES OF THE NEW LANDHOLDER DUTY MODEL
The new Landholder Duty Model will:
ACQUISITION THRESHOLDS
Different acquisition thresholds apply for taxable landholding entities before being liable to duty liability. The following thresholds apply:
NEW DEFINITION OF "INTEREST"
Under the current land rich provisions, interest means an entitlement to a distribution of property on a winding up of the landholder.
Under the landholder duty model, the interest will be the greater of a percentage:
IMPACT OF THE CHANGES
In Victoria, the changes will affect purchasers of an entity or who acquire an interest in an entity, owning land valued above the $1 million threshold.
Purchasers of shares in a company or interest in a private trust scheme, which owns land, must consider additional compliance costs, transaction costs and due diligence. These changes will affect re-structuring and asset protection programs and serious consideration to immediate action is advisable.
NEED MORE INFORMATION
Behan Legal advises and assists on these important issues. We suggest that, you call 03 9646 0344 to make an appointment to evaluate whether you need to take any immediate action.
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