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.
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—
An ‘associated transaction’ involves either—
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—
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.
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.