Stamp duty difficulties arising from a share restructure before completion

A recent Tasmanian case indicates that a parent company that enters into an agreement to procure a sale of property owned by its subsidiary, could be subject to duty as an agreement for sale – even if the property owner is not directly a party to that agreement.

This is significant because the entry into the sale and purchase agreement and the change in shares in the purchaser before completion, led to adverse stamp duty consequences.

Specifically, the proposed purchaser was classified as a land-rich entity (now called landholder duty in Tasmania) before the transaction was completed, effectively resulting in a double duty liability when its shares were transferred before the land purchase was completed. The case highlights the importance of clarifying ownership of a special purpose entity before it enters a land acquisitions contract to avoid double duty under landholder duty provisions in Tasmania.

The key takeaways are:

• A sale and purchase agreement where a parent company agrees to procure the sale of a property owned by its subsidiary company, may be considered as a legally binding contract for the sale of that property, even if the subsidiary that owns the property is not a direct party to the agreement.
• Taxpayers setting up entities to acquire land assets should ensure they have proper ownership structures in place before entering into a sale and purchase agreement. To “change your mind” or restructure the shareholdings after signing an agreement carries a significant risk of triggering double duty under the Tasmanian landholder duty provisions.
• A taxpayer that is a member of a corporate group may have the opportunity to utilise corporate reconstruction exemptions and concessions to secure a duty exemption or reduction when transferring ownership of the special purpose entity within the group after it acquires land assets.

The taxpayers have appealed the decision.