Significant stamp duty changes to impact on Victorian property development arrangements

Significant stamp duty changes to impact on Victorian property development arrangements

Significant stamp duty changes to impact on Victorian property development arrangements

The Victorian Parliament introduced the State Taxation Acts Amendment Bill 2019 (the Bill), which was passed by the Lower house on 29 May 2019. The Bill includes changes to the “economic entitlement” provisions contained in Part 2 of the Duties Act 2000 (Vic). The changes will have a significant impact on property developers and will result in a wider range of land development arrangements being subject to duty.

Current provisions

Landowners engage developers to undertake projects on their land under development agreements, which entitle developers to receive project costs and a profit from the development. Typically, the returns to the developer would be characterised as “economic entitlements” under the current provisions.

Where the landowner is a private company or unit trust, a stamp duty liability would arise if the developer is entitled to receive 50% or more in “economic entitlements” under the development agreement.

Key changes

The key expansionary changes introduced by the Bill are as follows:

  • All types of landowners (not just private companies or private unit trusts) with land worth $1 million or more will be subject to the new provisions.
  • The 50% interest threshold no longer applies, except for participation in dividends or income of a private company or unit trust where the land is worth $1 million or more.
  • The size of the interest acquired will be deemed to be 100% in certain circumstances subject to the Commissioner’s discretion. This will be relevant to the amount of duty payable.
  • Only the land the subject of the development agreement, rather than the landowner’s total landholdings, is relevant to the application of the new provisions. This change addresses the Supreme Court’s adverse decision to the Commissioner in BPG Caulfield Village Pty Ltd v Commissioner of State Revenue [2016] VSC 172.

The changes will come into effect on the day the Bill receives Royal Assent. This could be as early as 5 June 2019.

If you require advice in relation to your property development arrangements, please contact our Corporate, Commercial and Tax principal, Craig Finlayson.

Previous article Do you have NSW residential landholdings?