On 1 May 2018, the Victorian Treasurer introduced the State Taxation Acts Amendment Bill 2018 into Parliament. Amongst other proposed amendments, there are some noteworthy changes to the Duties Act 2000 (Vic). The Bill passed all stages on 5 June 2018 and received Royal Assent 8 days later on 13 June 2018.
The Royal Assent date is of particular importance, for the changes that make dutiable, changes in the partners or their relative shares, in a partnership that owns land. The Victorian State Revenue Office mentions this, in its summary of the new Act.
Partnership interests
Of particular interest is the proposal for the Victorian Parliament to reverse the Duty effect of the Danvest decision [2017] VSCA 382, where the Victorian Supreme Court, Court of Appeal, held that the Commissioner cannot impose land transfer duty, on changes in partnership interest, just because the Partnership owns Victorian land.
The Court held that a partnership interest was not, relevantly, an ‘interest’ in Victorian land, (which is a form of ‘dutiable property’ under s10(1)(ac) of the Duties Act). This, in turn, was crucial, as transfer duty is imposed on transfers of ‘dutiable property’ or changes in beneficial ownership of ‘dutiable property’ (under s7(1)(a)&(6), respectively).
The relevant principle, in this case, is that an interest in a partnership, is personalty, even though a partnership asset (even the sole partnership asset) is real property. In other words, the partnership interest is no more than the web of rights, between the partners themselves, as to the business the partnership, the assets committed to that business, and period of time they would remain committed to that business (eg: when the partnership would be, or could be, terminated). The net result was that no partner had any interest in any one asset of the partnership.
However, many expected that Parliament would change this, and this Bill has now been introduced to do that.
This Amending Bill will impose transfer and landholder duty, as if the partners have a beneficial interest in the underlying partnership property, by inserting the following new provision.
There is one positive, being that the corporate reconstruction provisions are also amended to allow partnerships with partners who are part of a corporate group to satisfy the exemption requirements.
Broadening of foreign purchaser test
Another noteworthy change proposed by the Bill is the amendment to make it easier to fall within the ambit of the definition of “foreign corporation” or “foreign trust”. This is because the control test (for a company) and the substantial interest test (for a trust) have been widened such that there is an aggregation of all interests held by any other foreign natural person, foreign corporation, or foreign trust, regardless of whether they are associated persons or not.
These are the crucial definitions for imposing the foreign person surcharge on land transfer duty.
Other proposed changes
Other proposed duty changes in the Bill relate to:
- foreign purchasers who jointly purchase a principal place of residence with an Australian spouse or domestic partner
- property vested in apparent purchasers
- exemptions for transfers of property between spouses or domestic partners
- the exemption for equity release programs
- principal place of residence exemptions and concessions for first home buyers who are members of the Australian Defence Force and
- the exemption from duty payable in respect of first time purchasers of farmland by farmers under 35 years of age.
FJM 13.6.18
[Victorian Legislation: Amendment Act; Victorian Parliament: Bill Tracker, Amending Bill, EM; KPMG Daily Tax News, 10.5.18; LTN 107, 6/6/18; Tax Month May 2018]
Study questions (answers available)
- Did the Court of Appeal, in Danvest, decide that changes in partnership interests, owning Victorian land, were not a transfer of ‘dutiable property or a change in the beneficial ownership of ‘dutiable property’?
- Was this because an interest in a partnership is ‘personalty’ even if the partnership owns real estate?
- Does the Bill reverse this?
- Is this by inserting a new s3Z into the Duties Act?
- Is there another change narrowing the scope of foreign persons subject to the land transfer surcharge?
