A taxpayer has been successful before the Victorian Supreme Court in a matter concerning whether it had acquired an “economic entitlement”, such as to invoke the Victorian landholder duty provisions.
In August 2012, the taxpayer entered into a Development Agreement (DA) with Melbourne Racing Club (MRC) in relation to the development and sale of certain land to be called “Caulfield Village” (“the CV land”). The CV land comprised lands owned by MRC (“the subject land”) and other lands. The parties agreed that, at all relevant times, the unencumbered value of the subject land had been less than 50% of the unencumbered value of all land holdings of MRC in Victoria. Under the DA, the taxpayer was appointed to carry out the development of the CV land and was entitled to participate in the proceeds of sale of the CV land.
In August 2013, the Commissioner assessed the taxpayer to duty on the acquisition of an “economic entitlement” under s 81 of the Duties Act 2000 (Vic). The taxpayer objected and the Commissioner partially allowed the objection by reducing the percentage interest acquired under the economic entitlement from 83% to 82.9%. The amounts in dispute included duty totalling $1.5m and interest.
The Supreme Court concluded [at para 79] that the taxpayer did not acquire an ‘economic entitlement’ within the meaning of s 81(2)(d) of the Duties Act. In doing so, it said: “On its proper construction, s 81(2)(d) of the Act cannot apply where a person acquires a right to participate in the proceeds of sale of some but not all of the land holdings of a private landholder. In this case, [the taxpayer] acquired a right to participate in the proceeds of sale of the Subject Land, but the Subject Land was far from the only land owned by MRC in Victoria. Indeed, the Subject Land comprised less than 50% by value of all the land holdings of MRC in Victoria. Therefore, s 81(2)(d) cannot apply to [the taxpayer’s] acquisition of a right to participate in the proceeds of sale of the Subject Land.”
(BPG Caulfield Village Pty Ltd v Comr of State Revenue [2016] VSC 172, Victorian Supreme Court, Croft J, 22 April 2016.)
[LTN 77, 26/4/16]
Extract from s81 of the Duties Act 2000
(2) For the purposes of this section, a person acquires an economic entitlement if the person acquires shares or units in a private landholder or enters an arrangement in relation to a private landholder under which the person is entitled to all or any of the following—
(a) to participate in the dividends or income of the private landholder;
(b) to participate in the income, rents or profits derived from the land holdings of the private landholder;
(c) to participate in the capital growth of the land holdings of the private landholder;
(d) to participate in the proceeds of sale of the land holdings of the private landholder;
(e) to receive any amount determined by reference to paragraph (a), (b), (c) or (d);
(f) to acquire any entitlement described in paragraph (a), (b), (c), (d) or (e).