On 1 July 2012, a new landholder duty model came into force in Victoria, replacing the previous land rich duty model. The amendments to the Duties Act 2000 have expanded the number of transactions in Victoria which will now attract a liability to pay duty if a “significant interest” is acquired in land holding entities. The reach of the new provisions extends beyond the scope of similar landholding duties imposed in other Australian jurisdictions. This means acquiring land owning entities in Victoria has become more complex and less favourable to acquiring land owning entities in other states and territories.
The core changes are:
- the removal of the 60% land to asset value ratio so that the liability for duty can now apply to any entity which owns land in Victoria with a total market value of $1 million or more
- the introduction of the concept of an ‘economic entitlement’. Anyone who acquires an economic entitlement (like dividends, income, rents, profits or proceeds of sale derived from the land holdings of the landowner), either directly or indirectly, of 50% or more in a landholder, will be liable to pay duty.
- the removal of the three year limitation period for aggregation of interests. All acquisitions of interests in a landholder can now be aggregated for an unlimited time period to determine whether a person has acquired a “significant interest” in a landholder.
If you currently have an investment in an entity which is a Victorian landholder and you are considering increasing that investment, or are considering making a new investment in an entity which is a Victorian landholder, seek advice on the possible exposure of the transaction to a liability for payment of landholder duty under the Duties Act.
These changes will particularly affect those who make or who increase investments in private trusts or companies which, at the time of the investment, own Victorian land with a market value of $1 million or more.