A recent Victorian Civil and Administrative Tribunal (VCAT) decision has ignited concern in the real estate and funds management industries with potential implications for certain types of capital raisings for land rich entities.

The Victorian Commissioner of State Revenue has successfully argued the acquisition of shares in a land rich company by separate investors should be aggregated because the acquisitions were part of ‘substantially one arrangement’.

Here, associate Matt Dolan explains what you need to know now.

What do you need to know?

1. Landholder duty is imposed on a relevant acquisition of a significant interest in a landholder.
2. A recent decision has implications for certain types of capital raisings for land rich entities such as real estate funds.
3. The Victorian Commissioner of State Revenue has successfully argued separate investor's acquisition of shares in a land rich company should be aggregated because the acquisitions were part of ‘substantially one arrangement’.
4. We recommend seeking appropriate duty advice prior to continuing with or proposing any further capital raising in a land rich entity.

What is landholder duty?

Landholder duty is imposed on a relevant acquisition of a significant interest in a landholder.

Generally, landholder duty will only arise in respect of an acquisition by an investor in a landholder where the interest meets or exceeds a certain percentage threshold in the landholder entity.

In Victoria, the relevant percentage of an investor’s interest is calculated by including interests acquired by—

• associated persons of the investor, and
• investors in an ‘associated transaction’.

An ‘associated transaction’ involves either—

• persons acting in concert, or
• acquisitions which form, evidence, give effect to, or arise from substantially one arrangement, one transaction, or one series of transactions.

What did the court decide?

The court said each investor’s acquisition was an associated transaction as there was “oneness or unity of purpose as between the shareholders and the company”, and ultimately the landholder was liable to pay landholder duty on the total of all interests acquired.

Although the investors were not associated persons and appeared to act independently of one another, they—

• dealt with the same issuer in accordance with the terms of an information memorandum, and
• would only proceed with the subscription of shares if a minimum threshold of subscription proceeds was met.

What are the implications?

The real estate and funds management industries have long taken comfort in revenue rulings from the Commissioner in dealing with associated transactions. However, the court specifically noted Revenue Ruling DA.057, which gives guidance on associated transactions, is not binding and there is no provision authorising the Commissioner to offer concessions.

Although the facts in this case do not specifically involve like-for-like circumstances as contained in the revenue ruling examples, it casts some doubt on whether the current revenue rulings can continue to be followed and whether there will be further implications for certain types of capital raising for land rich entities in the future.

What should you do next?

We recommend seeking appropriate duty advice prior to continuing with or proposing any further capital raising in a land rich entity.

Reach out to a member of our Real Estate team if you need more information on landholder duty and associated transactions and how this decision impacts your business.