One of the most significant recent changes to the Duties Act 2000 (Vic) (Duties Act) impacting our building and construction clients, has been the application of stamp duty to many types of land development arrangements.
The amendments, which commenced 19 June 2019, introduce a new economic entitlement regime, increasing the number of arrangements that are now subject to stamp duty. The purpose of these provisions is to impose duty on arrangements where a person, without acquiring an ownership interest in land, nevertheless obtains the economic benefits in relation to the land (which are usually reserved for the land owner).
Under the old provisions, if a party acquired an ‘economic entitlement’ of less than 50% in a development, duty was generally not payable on the arrangement. This threshold has been removed.
Further, all types of landowners (whether individuals, companies or trustees of any types of trusts) with land worth more than $1 million in Victoria are now subject to the provisions. Previously, the economic entitlement provisions only applied to private companies and private unit trusts.
In essence, if a person enters into an arrangement in relation to land with an unencumbered value of more than $1 million, under which the person is or will be entitled (directly or through another person or entity) to an economic entitlement in relation to the land, that person is taken to have obtained beneficial ownership in the land in proportion to the economic entitlement obtained.
An economic entitlement is acquired if a person enters into an arrangement to participate in the income, rents or profits derived from the land, or the capital growth or proceeds of sale of the land.
By way of example, if a person is entitled to a percentage of profits under an agreement (irrespective of whether or not the developer ultimately receives a profit due to cost blow-outs), the amount of duty payable will be determined by reference to that percentage of the unencumbered value of the land at the time the agreement was entered into.
Importantly, if the agreement doesn’t specify a percentage of the economic entitlement or includes multiple categories of economic entitlements, the beneficial ownership interest in the land acquired will be 100% unless the Commissioner determines otherwise in the circumstances in his discretion.
So if you are currently considering or negotiating a land development arrangement that could be caught by these new provisions or would like further information, please feel free to contact the property team at Partners Wealth Group on 1800 333 143.
And stay tuned for next month’s property update on another recent Duties Act amendment in relation to land transfer duty concessions involving commercial and industrial land in regional Victoria.