New Duty Laws – Corporate reconstruction exemption and “landholder” duty

Upcoming amendments to the Duties Act 2001 (the Act) will change the way in which indirect transfers of land are assessed for duty in Tasmania.

The Duties Amendment (Landholder and Corporate Reconstruction and Consolidation) Bill 2016 (Bill) was introduced into the House of Assembly in August but is yet to be enacted.

The Bill

The Bill will operate by replacing Tasmania’s current “land-rich” regime with a “landholder” model for assessing whether the sale of shares in a private company or units in a private unit trust will attract a duty liability due to the acquired company or trust’s existing property holdings.

The Bill also further extends duty liabilities under the Act by:

  • making duty payable on certain acquisitions of listed companies and public unit trusts; and
  • assessing duty not only on the landholder’s property holdings, but also on the value of its goods as well (other than stock in trade, materials held for use in manufacture, goods under manufacture, livestock, and registered motor vehicles),

with both of these measures not part of the current legislation.

The Current Model

Currently under the Act duty is payable when a majority interest is acquired in a land-rich corporation (or an acquisition leads to a majority interest, or an entity which already has a majority interest, acquires a further interest in a land-rich corporation).

A corporation is currently considered to be “land rich” if:

  • it has land holdings in Tasmania whose unencumbered value is $500,000 or more; and
  • its land holdings in all places, whether within or outside Australia, comprise 60% or more of the unencumbered value of all its property.

The New Model

Under the amendments, the requirement for a corporation to hold property worth more than 60% of the unencumbered value of all its property will be removed. The test will now simply be whether a company (private or listed) or unit trust (private or public) directly or indirectly holds Tasmanian land interests valued at $500,000 or more. If it does it will be considered a “landholder” for the purposes of the Act.

Acquisitions in a “landholder” of 50% or more for private companies and unit trusts and 90% or more for listed companies and public unit trusts will give rise to a liability to landholder duty. If a 90% or more interest in a public landholder is acquired, the entity acquiring that interest will be deemed to have acquired a 100% interest with duty assessed accordingly. The duty imposed on acquisitions in listed companies or public unit trusts will be much lower however, being only 10% of the general rate of duty.

These amendments, together with the low land threshold value of $500,000, mean that advice may be required when dealing with any acquisitions of shares or units in an entity that holds (directly or indirectly) land in Tasmania. Particular consideration should also be had to any acquisitions that cross the date the landholder regime is enacted (on Royal Assent) in view of the transitional provisions.

Corporate Reconstruction and Consolidation Exemptions

A second aspect of the Bill is the introduction of exemptions for corporate reconstruction or corporate consolidation. Currently in Tasmania there is no formal duty exemption when a corporation reconstructs or consolidates.

The corporate reconstruction and consolidation exemptions provide eligibility criteria for an exemption. That is, the transfer must be between members of a “corporate group”. A “corporate group” is formed between a parent company and a subsidiary in which the parent company owns 90 per cent or more of the shares. The transfer can occur between 2 such subsidiaries or between a parent and a subsidiary.

Both the reconstruction and consolidation exemptions will be subject to a pre-association and post-association test. These will require members of a corporate group seeking the benefit of an exemption to show that they have been members for at least 12 months prior to a relevant acquisition and that they must stay members for the 12 months following the relevant acquisition. Should they not, the exemption will be revoked and the duty will become payable. Late payment interest and penalty tax may also be imposed.

If you have any queries or would like further information regarding this article, please contact:

David Shelley
Managing Principal
M: 0427 183 217

Brett Garth
T: (03) 6235 5915

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