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TODAY'S LEGAL NEWS
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| ARTICLES AND ALERTS |
Significant Stamp Duty Change: ‘Land Rich’ to ‘Landholder’
Author: Matthew Smith
Publish Date: September 15, 2009
Before 1 July 2009, stamp duty for acquisitions of interests in land owning companies and other entities was calculated based on whether the entity was "Land Rich" as defined by the Duties Act. A Land Rich entity was one that:
- had land holdings in
- had land holdings representing at least 60% of its assets.
If a person acquired a 50% or more interest in a Land Rich private company or wholesale unit trust, or a 20% or more interest in a Land Rich private unit trust, duty would be charged on that acquisition at the transfer of land rate, which is significantly more expensive than the stamp duty charged on transactions like the sale of shares. The quantum of duty payable on those acquisitions of Land Rich entities was calculated by multiplying the transfer of land rate by the unencumbered value of the Land Rich entity’s land in
From 1 July 2009, stamp duty for acquisitions of interests in land owning entities is calculated based on their status as “Landholders” under the Duties Act. A Landholder is an entity that has unencumbered land holdings in
The way this $2m land holding value is calculated has also changed under the new laws. Now, in the case of private unit trust and private companies, any land holdings of a “Linked Entity” of the private unit trust or private company will be deemed to be the land holdings of that trust or company. A Linked Entity is an entity that the private unit trust or private company owns at least a 50% interest in. Public unit trust schemes and listed companies cannot be Linked Entities.
If a private unit trust scheme or private company is found to have land holdings in
Liability for stamp duty payable under these new laws is payable if a person makes a “Relevant Acquisition” of a Private Landholder. A person makes a Relevant Acquisition of a Private Landholder if it acquires an interest in the Private Landholder:
- That is a “Significant Interest” (50% or more of the Private Landholder);
- That, when combined with the person’s other interests in the Private Landholder, constitutes a Significant Interest; or
- That is part of a set of transactions that amount to a single arrangement to acquire a Significant Interest in the Private Landholder.
If a person makes a Relevant Acquisition of a Private Landholder, stamp duty will be charged at the transfer of land rate (between 1.25% and 5.5%). Importantly, stamp duty payable will be calculated proportionately to the size of the person’s acquisition and based on the total value of the unencumbered land and goods owned by the Private Landholder and any of the Private Landholder’s Linked Entities. Note that for the purposes of this calculation, goods do include the goodwill of a business (so long as that business has supplied goods or services in
- Goods that are stock in trade;
- Materials that are held for use in manufacture;
- Goods in the process of being manufactured;
- Goods held or in use in connection with land used for primary production;
- Livestock;
- A registered motor vehicle; and
- A ship or vessel.
Under the new system, if a person acquires an interest in an entity when it is not a Landholder, and that entity subsequently becomes a Landholder, duty will not be calculated at the transfer of land rate, but at a lower rate. However, twelve months after the acquisition of the land by the Landholder, such acquisitions will have duty payable at the transfer of land rate.
The situation will change for “Public Landholders” (Landholders that are listed companies or public unit trust schemes) on 1 October. Listed companies or public unit trust schemes were never considered as part of the Land Rich regime, and so persons who acquired an interest in that type of entity were never required to pay duty at the transfer of land rate. Now, persons acquiring an interest in Public Landholders may be liable for the Landholder duty. The Relevant Acquisition test is the same as for Private Landholders, but a Significant Interest in a Public Landholder will be 90% of the Public Landholder. Duty for Relevant Acquisitions of Significant Interests in Public Landholders will be charged at 10% of the rate charged for private landholders (0.125% to 0.55%).
With the new system come new provisions to deter “artificial, blatant or contrived schemes to reduce or avoid liability for duty”. If the Chief Commissioner makes an assessment that a scheme was put in place for the avoidance of duty, the Chief Commissioner may make an assessment of the quantum of duty that would have been payable had the scheme not been entered into. The person liable to pay the duty will have to pay the amount calculated by the Chief Commissioner plus additional interest calculated from the day the scheme was entered into.
These new laws represent an increase in the stamp duty tax base. The change from the Land Rich test to the Landholder test means that more acquisitions in land owning companies and other entities will be calculated at the transfer of land rate. This effect is amplified by the new Linked Entity tracing provisions that make it easier for a private land owning company or other entity to meet the $2m land owning threshold and be classified as a Private Landholder.
If you are acquiring an interest in a company or any other entity caught by these new laws, it will be important to identify whether these new laws apply, and if so, what additional acquisition costs will result.
If you have any questions please contact Matthew Smith on (02) 4907 6319 or matthew.smith@harriswheeler.com.au.
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