Initial issue of shares to 18 unrelated investors in a Victorian ‘landholder’ was subject to duty – Court of Appeal agrees all 18 were part of an ‘associated transaction’

The Victorian Supreme Court of Appeal has upheld a Tribunal decision, that the ‘landholder’ provisions of the Duties Act 2000 (Vic) applied, to an initial capital raising, to develop land at Diamond Creek in Victoria.

The taxpayer company, was a special purpose vehicle, formed to raise the necessary capital for the project. It had been part of the Oliver Hume Group of companies, but in 2014, it undertook a capital raising to fund the development of the Diamond Creek property. It issued a total of 1.8m shares at $1 per share to 18 separate investors, raising $1.8m in total. The 18 investors were unrelated, and each investor made an independent investment decision, to invest, that was not reliant on others (except in the way which I’ll mention.

In July 2020, the Commissioner of State Revenue assessed the taxpayer to landholder duty, on the basis that the acquisition of shares, by the 18 investors, constituted a “relevant acquisition” of a 99.99% interest in the ‘landholder’ taxpayer, for the purposes of s 78(1)(a)(ii)(C) of the Duties Act, even though no single investor held a significant interest (50% or greater) in the taxpayer. The Victorian Civil and Administrative Tribunal upheld the assessment in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2023] VCAT 634.

The Victorian Court of Appeal has dismissed the taxpayer’s appeal, agreeing with the Tribunal that the acquisitions of shares, in the taxpayer, by the 18 investors constituted an “associated transaction”, as defined in s 3 of the Duties Act, as they ‘together formed, evidenced, gave effect to or arose from substantially one arrangement, one transaction or one series of transactions’. Relevant factors were:

• the acquisitions were interconnected in circumstances where no individual acquisition could go ahead at all unless a total of $1.8m was raised;
• in substance, the acquisitions gave effect to a single venture for the development of the property by the taxpayer; and
• the effect of the acquisitions of the shares, was to convert the landholder, from being an Oliver Hume entity, to an entity owned by a group of private investors (as to 99.99%).

(Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175, Victorian Court of Appeal, Kennedy, Macaulay and Lyons JJA, 8 August 2024.)

[FJM 17.8.24; LTN 154, 16.8.24]