16th annual states' taxation conference...australian government budget papers 2014-15 –...

© Barbara Phair, Ashurst 2016 240610243

Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this paper and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

16TH ANNUAL STATES'

TAXATION CONFERENCE

SESSION 9A:

Landholder Duty and Transfer Duty in the

Context of Government Asset Sales and

Public Private Partnership Transactions

Written by:

Barbara Phair

Partner

Ashurst

Presented by:

Barbara Phair

Partner

Ashurst

Tax Division

27-29 July 2016

Darwin Convention Centre, Darwin

Barbara Phair Landholder Duty and Transfer Duty in the Context of Government Asset Sales and Public Private Partnership Transactions

© Barbara Phair, Ashurst 2016 2

CONTENTS

1 Introduction .................................................................................................................................... 3

2 Government Pre-sale Restructures .............................................................................................. 5

2.1 Introduction ............................................................................................................................... 5

2.2 Availability of Government Exemptions .................................................................................... 5

2.3 Compulsory Acquisitions ........................................................................................................... 7

2.4 Tax Equivalent Regimes ........................................................................................................... 8

2.5 Hypothetical Government Restructure: Sale of Sewerage Treatment Plant ............................ 8

3 Typical Sale Structures ............................................................................................................... 11

3.1 Long term leases .................................................................................................................... 11

3.2 Hypothetical Example of Long Term Lease – Light Rail Link ................................................ 12

3.3 Securitised Lease/Licence Structures .................................................................................... 17

3.4 Stapled Structures .................................................................................................................. 18

4 Secondary Transactions in Government Assets ...................................................................... 21

4.1 Introduction of New Investors ................................................................................................. 21

4.2 IPOs ........................................................................................................................................ 22

4.3 Wholesale sales ...................................................................................................................... 22

4.4 Hypothetical Exit – Airport Asset ............................................................................................ 23

ANNEXURE 1 – STATE AND COMMONWEALTH EXEMPTIONS .................................................... 25

ANNEXURE 2 – STATUTORY PROVISIONS IN RELATION TO PREMIUMS ON LEASES ............. 27

ANNEXURE 3 – LANDHOLDER/LAND RICH DUTY .......................................................................... 31

ANNEXURE 4 – REQUIREMENTS FOR WHOLESALE TRUST STATUS ......................................... 32

Barbara Phair Landholder Duty and Transfer Duty in the Context of Asset Sales and Public Private Partnership Transactions

© Barbara Phair 2016 3

1 Introduction

In an environment where the Australian economy is shifting away from manufacturing and resources

to knowledge and innovation, there is an increasing demand on government, at Federal, State and

local level, to provide critical infrastructure in high density locations to support economic growth. This

includes integrated public transport networks, motorways to ease congestion and better heavy

transport links (ports, airports and rail)1.

At the same time, the rising costs of health, education and other social needs have reduced the ability

of governments to fund major infrastructure projects alone2.

Australia has been a world leader in private investment in infrastructure projects since the 1990's

through public private partnerships and listed infrastructure funds, with (mostly) successful private

investment in both brownfield and greenfield toll roads, ports, airports and water and electricity

networks3. Infrastructure projects have been attractive investments to Australian superannuation and

foreign pension and sovereign funds in particular, given the perception of long-term sustainable

returns with low associated risk4.

It is therefore hardly surprising that in the lead up to the recent Federal election, both the Liberal and

Labor parties included funding of future infrastructure projects as a key policy initiative, with the

Opposition promoting a "concrete bank"5 overseen by Infrastructure Australia, and the Government

talking up "asset recycling" and "value capture" as innovative ways to assist funding of major

projects.6

With 199 major projects listed on the National Infrastructure Construction Schedule, and $91bn worth

of projects listed on the National Priority list, the next decade looks to continue the trend set in the

past five years (particularly in NSW and Victoria) of:

the identification and sale of mature government assets (attractive to the superannuation sector);

and

1 Referred to as the "infrastructure investment gap" or "infrastructure task", estimated at $30 billion per annum by Infrastructure

Australia in 2011. 2 These issues are discussed in the context of Sydney's public transport system in: "Are we there yet? Value capture and the

future of public transport in Sydney", Committee for Sydney Issues Paper II, December 2015. 3 Refer to the study in Inderst G., Della Groce R., (2013) Pension Fund Investment in Infrastructure: A Comparison between

Australia and Canada, OECD Working Papers on Finance Insurance and Private Pensions, No 32, citing that Australian and

Canadian pension funds had the highest asset allocation to infrastructure in the globe at that time. 4 It is estimated that Australian superannuation funds will have over $4 trillion in savings by 2025. A study by Ernst & Young in

2014 estimated that Australian superannuation funds had approximately $45 billion invested in infrastructure assets in Australia

and overseas. 5 As described in Bill Shorten's address to the Queensland Media Club on 8 October 2015. 6 As outlined by Paul Fletcher MP in a speech to the Australian British Chamber of Commerce: The Paradox of Investment in

Infrastructure on 18 May 2016.



the redirection of sale proceeds to new greenfield projects, which will be jointly funded by

Government and private investment7.

It can be anticipated that both government and private sector investors will be looking for more

sophisticated and innovative acquisition, sale and operating structures to extract maximum value and

greatest returns from such investments8.

It is in this context, that this paper will explore the stamp duty implications of government asset sales

and privatisations. In many respects, the fact that the vendor of an asset is a government body, or

that the government is a co-investor in new projects, makes (or should make) little difference to the

stamp duty outcome, as compared to any other transaction. However, as stamp duty is often a

material cost to a major "land bank" transaction, and also a significant source of State revenue,

certain unique considerations can become relevant, including:

how should potential stamp duty costs be factored into the bid price;

when, and how, should State and Commonwealth tax exemptions be applied; and

to what extent do (and should) stamp duty outcomes affect investment structures.

This paper will touch on some of these issues, as well as discuss some of the stamp duty implications

of common structures seen in infrastructure transactions, including stapled structures, securitisations

and long term leases9.

7 As part of the Federal Governments "Asset Recycling Initiative" State Governments can receive a Commonwealth grant of

15% of the price of the approved assets sold if the sale proceeds are allocated to new infrastructure investment. Refer to the

Australian Government Budget papers 2014-15 – Infrastructure. In the NSW Budget handed down on 21 June 2016 the NSW

government committed $68.7bn to capital investment over the next four years. 8 See, for example, article by Chris Brown: Value Capture is Infrastructure magic bullet, Australian Financial Review, 21

October 2015. 9 References in this paper to legislation are to the Duties Act, 1997 (NSW); Duties Act, 2000 (Vic); Duties Act, 2001 (Qld);

Duties Act, 2001 (Tas); Stamp Duties Act, 1923 (SA); Stamp Duty Act, (NT), Duties Act,1999 (ACT) and Duties Act, 2008 (WA),

unless specified otherwise.



2 Government Pre-sale Restructures

2.1 Introduction

Where the Commonwealth or a State government has identified an existing asset or business for

privatisation, it will often be necessary to prepare the asset for sale by:

separating and isolating the assets from other assets which are to be retained;

putting the assets or business into a vehicle which will be attractive to investors; and/or

putting mechanisms in place (such as formalising contractual arrangements) which will allow

the government and the private owner to fulfil their ongoing commercial objectives.

Each of these are likely to have stamp duty implications. While these are issues for any sale, a

government vendor may have particular restrictions, as well as particular advantages, which will factor

into this process. This section will look briefly at some of the aspects peculiar to a government vendor.

2.2 Availability of Government Exemptions

a. Commonwealth Exemptions

Under section 114 of the Australian Constitution a State (as defined) is prohibited from imposing any

tax on property of any kind belonging to the Commonwealth. The prohibition has been interpreted

quite strictly and the meaning of "tax on property" considered judicially.10 Stamp duty will generally be

a "tax on property" in the sense that it arises from the ownership or holding of property, even though

the duty liability is created by a transaction.

As such, the Commonwealth will generally be free to acquire dutiable property by a dutiable

transaction with exemption from State stamp duties. This seemingly broad exemption is, however,

subject to at least two significant restrictions:

i. to rely on the exemption, the Commonwealth must be the party with the statutory liability to

the stamp duty – it is not sufficient that it is a party to the transaction11; and

ii. the exemption does not extend to all Commonwealth controlled entities, although a statutory

corporation may be exempt unless there is evidence of a statutory intention to tax the

entity12.

10 See for example, State of Queensland v Commonwealth of Australia (1987) 162 CLR 74 and The State of South Australia

and Another v The Commonwealth of Australia and Another (1992) 174 CLR 235. 11 See Commonwealth v State of New South Wales (1918) 25 CLR 325. 12 Superannuation Funds Investment Trust v Commissioner of Stamps (SA) (1979) 10 ATC 97.



Further, it is within the power of the Commonwealth to legislate to make a particular transaction,

property or entity exempt from State taxes, including stamp duty. However, it appears that the

Commonwealth cannot legislate so as to take away an existing right of a State to collect revenue on a

transaction without proper compensation13. This means that any legislative exemption can only

operate prospectively to deny the State the ability to assess a transaction to duty. Otherwise, the

Commonwealth will be required to compensate the State for the resulting loss of revenue.

Commonwealth legislation to exempt bodies or transactions not otherwise eligible for exemption from

State taxes is reasonably rare, and has generally only been enacted in the context of major projects

which are in the broad national interest. When enacted they tend to be limited to pre-sale

restructuring or reorganisations, and do not exempt the body from stamp duty (or other taxes) arising

in the ordinary course of their activities (which would be contrary to the Commonwealth guidelines on

competitive neutrality)14.

While limited, Commonwealth exemptions and statutory concessions do allow for the more efficient

implementation of major Commonwealth sales.

b. State Exemptions

The stamp duty legislation in every State and Territory provides for some level of exemption from

stamp duty for the Crown in the right of the State and State owned entities. A table summarising

these is included at Annexure 1.

Historically, there has been a presumption, as a matter of common law, that legislation does not bind

the Crown unless the legislation expressly states an intention to do so. This test has been diminished

since the decision in Bropho v Western Australia15.

The broad principles for Crown immunity include:

transfers to the Crown in the right of the State should generally be exempt16;

transfers to government business enterprises should generally attract duty in the normal manner,

applying the guidelines as to competitive neutrality adopted by each State and Territory17;

particular major transactions may warrant special treatment, and it is in this category that pre-sale

restructures may be exempted from duty18; and

13 This is the effect of section 51(xxxi) of the Constitution. 14 An early example can be found in s30B of the Snowy Mountains Hydro Electric Power Act, 1949. More recent examples

have limited their scope to "exempt matters" – see for example, s67AS of the Australian National Railways Commission Sale

Act 1997 and s67 of the Defence Housing Australia Act 1987. 15 [1990] HCA 24. 16 The Queensland Office of State Revenue has set out in Revenue Ruling DA 426.1 the manner in which the Queensland

Office of State Revenue will apply the exemption where the State is a party to the transaction (recognising that joint and several

liability still applies in some cases). 17 Every State and Territory has adopted competitive neutrality guidelines set in accordance with the Commonwealth 1996

Competitive Neutrality Policy Statement. See for example the Financial Policy Framework in NSW and the Competitive

Neutrality Policy September 2012 issued by the Victorian Department of Treasury and Finance.

18 See, for example, the specific exemption in section 315 of the NSW Duties Act for the Minister by order in writing to direct

that duty is not payable on transactions relating to the Sydney Desalination Plant.



major projects which raise complex stamp duty issues may warrant private participants being

indemnified from duty costs, so that stamp duty risk is not priced into bids19.

In this context, government tenders for sale of assets may specify the stamp duty position to be

adopted by bidders. The range of approaches has varied over time and by jurisdiction. However, the

following models are common examples:

Assets are offered for a bid price which is exclusive of stamp duty:

This requires the investor to assume stamp duty risk if the duty is more than estimated, and can

result in a reduction in bid price to factor in that risk. It can also lead to bidders favouring

structures which have a more favourable stamp duty outcome.

Assets are offered for a bid price which is inclusive of stamp duty:

To the extent that stamp duty is less than estimated by a bidder, it increases the purchase price of

the assets. This takes a "whole of government approach" and avoids the bid price being

understated on account of potential stamp duty transaction costs. It also removes incentives to

structure to reduce duty costs.

Assets are offered for a bid price which is exclusive of stamp duty with an indemnity for

any duty payable:

This will generally require Treasury (or the relevant government department) to estimate the duty

forgone (or to be accounted for between the department and Treasury). It has the advantage of

removing risk to the investor who may otherwise reduce their bid price, and avoids stamp duty

affecting the bid structure.

Faced with these various models, both investors and government proponents generally favour

certainty. State revenue offices can assist by providing advance private rulings, consulting with

government and Treasury on bid structures, and engaging early with bidders around lodgement

processes.

2.3 Compulsory Acquisitions

Both the Commonwealth and the States have the power to compulsorily acquire land which is

required for government projects. This puts the government in a unique position to secure strategic

sites for major infrastructure projects, and to realise the added value when the project is

commercialised.

Generally, land compulsorily acquired is acquired by an entity which is exempt from State taxes,

including stamp duty. However stamp duty (as well as other State taxes and levies, such as GAIC in

Victoria20) can arise when land is swapped or subdivided, or leases surrendered as part of a

compulsory acquisition. Often any liability of the landowner to any such costs needs to be met by the

19 See for example the stamp duty indemnity provided by the NSW government Barangaroo Delivery Authority as detailed in

the Fourth Deed of Amendment to Project Development Agreement reproduced on the Authority's website. 20 Growth Areas Infrastructure Contribution, which gives rise to a one-off upfront contribution towards infrastructure when

certain events affecting development land occur.



government body as part of the compensation package, and this can add significant costs to a project.

Where it is a State body which bears this cost, there could be merit in taking a "whole of government"

approach, such that Treasury accounts to the State body for the revenue collected from the

transaction.

2.4 Tax Equivalent Regimes

As noted above, all of the States and Territories have adopted competitive neutrality guidelines

designed to prevent government bodies having competitive advantages (due to their status or size or

regulatory position) over private participants with whom they compete. These recognise that tax

exemptions for government bodies (both from Commonwealth and State taxes) can have a

distortionary effect on the market. Therefore, in order to create a more level playing field, exempt

State entities can be required to calculate their notional liability to taxes and make equivalent

payments to the State Treasurer.

It is important to understand that tax equivalent regimes require liabilities to be calculated in the same

manner, and be paid at the same time as for a non-exempt taxpayer. However, in the case of State

tax equivalent payments, these go to the relevant State Treasury or revenue office, even if it would

not ordinarily be the tax collector. So, for example, Commonwealth capital gains tax liabilities and

local government charges will be paid by State departments to State Treasury and, absent any

voluntary arrangement otherwise, go into consolidated State revenue.

This may create a unique incentive for a State to structure transactions to generate tax equivalent

payments, rather than direct tax liabilities to non-State tax collectors.

2.5 Hypothetical Government Restructure: Sale of Sewerage

Treatment Plant

Imagine that a State or Territory government has decided to privatise a major sewerage treatment

plant. It is located on Crown land and accessed by the State water authority, who currently operate

and maintain the plant and also own the network of pipes which transport untreated waste to the plant

and remove treated water to local waterways. Only the ownership and operation of the treatment

plant is earmarked for sale.

Stamp duty issues raised by this scenario include:

transfer of the Crown land and improvements to the land to a separate legal entity for sale, and

whether this transaction should be exempted from stamp duty;

identification of a suitable vehicle for private investment, having regard to the different treatment

of sales of interests in landholding trusts and companies in some States and Territories;

putting in place contractual arrangements with the State and the water authority to compensate

the private owner for the acquisition and running costs of the plant, which could involve the

transfer of goodwill, grant of statutory licences, conferring rights under uncompleted contracts to



supply goods or services or the grant of rights to income from land, which have stamp duty

implications in some States;

grant of long term access arrangements back to the State and/or the water authority for safety

and security reasons, which could involve the grant of a lease or licence over the land which

attracts duty in some States and Territories; and

grant of step - in rights in the event of a default, which may involve the grant of call options for the

State or the water authority to take back the private entity or the assets, which attracts duty in

some States.

And the list goes on. The manner in which each of these aspects are dealt with will be influenced by

government policies and objectives, but could possibly be dealt with as follows:

Initial transfer of assets from State to sale vehicle Sale entity not exempt, so government needs to agree

who will bear stamp duty cost, or pass specific legislation

to exempt the transfer

Contractual arrangements between State, water authority

and sale entity

Where sale entity has the liability, the transaction should

attract duty in normal manner, in accordance with

competitive neutrality guidelines on basis any start-up

business would incur these costs.

Step –in rights If conferred on the State, State can rely on Crown

immunity.

Initial sell-down of sale entity Stamp duty liability should remain where it falls on basis

that an investor in an equivalent non-State asset would be

required to pay duty as a transaction cost. However,

timing of sale and/or number of investors may allow

stamp duty costs to be managed so as to not reduce bid

prices (ability to vest assets by statute, waive statutory

requirements etc, may give the State an advantage over

private vendors).

Future changes in ownership On any future selldowns stamp duty liability should remain

where it falls, on basis that this investment is competing

with other investments which do not enjoy any

concessions ie level playing field.

While the State as vendor may in some cases have greater flexibility to structure a sale in such a way

as to manage stamp duty costs for investors, it is interesting to observe that private vendors may be

able to avail themselves of corporate reconstruction relief which is not available to State bodies.

Traditionally, corporate reconstruction relief has not been available (or relief has been clawed back

when the transferor leaves the corporate group) for the transfer of business assets and entities where



the purpose has been to restructure assets for sale. However, the current reconstruction relief

provisions which apply in New South Wales, Western Australia and South Australia recognise that the

removal of duty on the transfer of business assets, combined with a broad landholder duty, make the

need for such restrictions unnecessary. There is also a policy consideration - that allowing for the

efficient circulation of assets can actually generate more tax revenue in the long term.

The writer is unaware of any State or Territory allowing government bodies to avail themselves of

corporate reconstruction relief as if they were members of the same corporate group. There is a clear

precedent for such an approach in the way government bodies are treated for GST purposes21 and

there would appear to be some merit in this approach.

21 See section 149-25 of the A New Tax System (Goods and Services Tax) Act, 1999 (C'th) which allows government related

entities to form a GST group.



3 Typical Sale Structures

3.1 Long term leases

A number of recent high profile government infrastructure transactions have taken the form of a long-

term lease – including the NSW government "wires and poles" privatisations and a number of port

projects.

The attractiveness of a long-term lease structure is obvious – it allows investors to obtain a secure

tenure over the assets for a defined term, while the State retains the reversionary interest, so that a

future generation may be able to recycle or redevelop strategic networks. It also removes many of the

stamp duty issues associated with transferring ownership of land and fixed assets away from the

State, and transferring them back when the concession come to an end (or if there is an event of

default) .

All States and Territories have abolished lease duty on rent payable over the term of a lease.

However, all States and Territories have retained duty on certain premiums paid or provided for the

grant of a lease, with duty applying at transfer duty rates. Within the category of "premium" duty there

are 3 distinctions worth mentioning:

a number of States limit duty to premium payments and do not seek to assess duty on the value

of any non-monetary consideration provided for the grant of a lease, or to assess duty on the

unencumbered value of the lease22;

other States have retained the higher of non-monetary consideration and unencumbered value as

relevant to calculating the dutiable value of the grant of a lease23; and

some States, in response to perceived gaps in their duty base, have implemented specific

provisions designed to capture the economic benefit of a lease which confers ownership type

benefits24.

The relevant provisions applying in each State and Territory are summarised in Annexure 2.

In the context of a government infrastructure transaction there will typically be an upfront lump sum

payment, and if this is regarded as a premium paid for the grant of a lease, transfer duty will apply.

Some particular issues that can arise in this context stem from the following:

Non-exclusive licences do not typically attract duty on their grant25, even if granted for a lump

sum. Often in the context of major public infrastructure, such as rail and road projects, the private

22 This is the model which applies in NSW (section 8(1)(b)(viii)); VIC (section 7(1)(b)(v)); WA (section 17(2)(c)) and SA (section

64). In QLD duty applies to any premium payable for the grant, and also to the consideration paid (or value of) any moveable

chattels taken on by the lessee and, where a business is carried on at the leased premises and excessive rent is paid, the

excess amount.. 23 See NT (item 4, Schedule 1), ACT (section 10(1)(a)) and TAS (section 6(1)(b)(iii)). 24 Most notably, the Victorian provisions impose duty on the underlying land value for certain categories of leases. The ACT

provisions impose duty on the premium on the grant of certain commercial leases, which the revenue office applies if the value

exceeds 25% of the market rent over the term.



investor will be happy with non-exclusivity, and the State will wish to retain paramount control

over the site. A licence may therefore be sufficient to achieve the commercial needs of the

parties.

In a complex infrastructure project, the private consortium and investors within it, may make a

range of different payments to different government bodies for different concessions or benefits. It

is not always easy to determine what a particular payment is for, a point illustrated in the recent

Victorian Lendlease litigation26.

In those States where it is necessary to value non-monetary consideration for the grant of a lease,

to what extent should, for example, covenants to construct, or to maintain or operate plant, be

viewed as consideration for the grant of the lease? Should the grant be viewed as incidental only

to the operation of the plant, and the value to the investor viewed as the revenue generated over

the term of the lease? At least in the case of social infrastructure , the cost to construct is

typically reimbursed through the service payments made by the State, and is not consideration for

the grant of the lease.

Periodic payments over the term of a lease may, for financing, security or other reasons, be

truncated into an upfront payment. At what point does the upfront payment stop being pre-paid

rent, and start being a premium?

Any detailed discussion of these issues is beyond the scope of this paper. However, some brief

observations are set out below in the context of a hypothetical example.

3.2 Hypothetical Long Term Lease – Light Rail Link

A State government has secured a light rail corridor to link 2 existing train and bus interchanges,

through a combination of disused pipeline easements and compulsory acquisition of industrial land. In

order to finance the construction of the light rail, it is proposed that there will be a long term access

right offered to the successful bidder, whereby the bidder will be responsible for:

Preparing the route for construction, including removal of the disused pipeline, remediation of the

industrial sites (which the State will re-zone for residential development), and building bridges and

overpasses to the government's specifications;

Constructing the rail link and stations along the route and integrating the network into the existing

rail and bus infrastructure, and carrying out a beautification project whereby a green reserve will

act as a buffer between the light rail corridor and existing residences;

25 Note that in ACT a lease is defined to include any right to use land. Also, the extended definition of "interests" in land under

the various State interpretation legislation can be relevant. For example, see section 36 of the Acts Interpretation Act 1954

(Qld) which was held in Sojitz Coal Resources Pty Ltd v Commissioner of State Revenue [2015] QSC 9 to not extend the term

"interest" beyond its normal meaning, having regard to the particular stamp duty provisions applying at the time. 26 Lend Lease Development Pty Ltd v Commissioner of State Revenue [2012] VSC 108; Lend Lease Development Pty Ltd v

Commissioner of State Revenue [2013] VSCA 207; Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014]

HCA 51.



Supplying the rolling stock and installing a ticketing system which is integrated with the rail and

bus ticketing system;

Operating and maintaining the rail link for 30 years at the end of which the access right will come

to an end unless extended by the government, and the operator will hand back the network and

the rolling stock in good working condition.

The successful bidder will pay to the State an annual amount for use of the network over the term of

their access rights, which will be set as a fixed amount plus a percentage of the ticket sales collected.

The bidder is invited to offer an upfront amount in place of the annual charges.

In return, the successful consortium will receive:

The right to develop and sell the re-zoned industrial land for residential development;

The exclusive right to operate the network and to collect and retain all ticket sales over the term of

the access arrangements;

Compensation for constructing bridges and overpasses; and

A monthly service fee from the State for operating the network.

It is anticipated that, due to the size and complexity of the project, different consortium members will

bring different skills to the project and have different long term objectives. For example, one of the

consortia may be a residential developer who wishes to access the industrial land. Another may have

the expertise to construct the network, and yet another may have experience in operating rail

infrastructure.

In a scenario such as this, it might be expected that the State and each of the bidders will value their

respective contributions, and the benefit which they receive in return, differently. However, stamp

duty requires the consideration (monetary and non-monetary) to be identified and valued for the

transfer of any dutiable property, and then for this to be tested against market value to determine the

higher of the two. This leads to some challenges, which are discussed briefly below. First, however,

some consideration should be given to the threshold question of the nature of the access rights for

stamp duty purposes.

a. Stamp duty treatment of Access Rights

One only needs to look as far as the decisions in Asciano 27 and CCM Holdings28 to appreciate the

difficulties which can arise in characterising access rights granted in connection with public

infrastructure projects.

In Asciano, an agreement between the State-owned Rail Access Corporation and Pacific National for

Pacific National to access railway lines and associated rail infrastructure facilities (which were on land

owned by the State Rail Authority) was held to be an agreement by which a right to use land was

acquired by Pacific National, even though the ability of Rail Access Corporation to grant the rights

27 Asciano Services Pty Ltd v Chief Commissioner of State Revenue [2008] HCA 46.

28 CCM Holdings Trust Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 1072.



relied on statute. The case required a careful analysis to identify how, and by what means, the rights

arose.

Similarly in CCM Holdings, the question of whether a unit trust holding a lease of a tollway, coupled

with a right to collect tolls, was land rich required consideration of the source and nature of the tolling

rights to ascertain whether they were a separate item of valuable property to the land lease (which

was clearly an interest in land). Bergin J. held that the statutory regime resulted in the tolling rights

not being capable of assignment separately from the lease of the land, and they were not therefore a

separate item of property from the lease. Had the tolling rights been capable of separate ownership,

they would not have been an interest in land.

These, and other cases outside a stamp duty context, confirm that any analysis must start with a clear

understanding of the relevant statutory framework to ascertain the precise nature and purpose of the

rights conferred. As famously stated by Windeyer J. in North Shore Gas, it is futile to attempt to

classify and describe statutory rights according to traditional legal concepts and terminology -

Parliament can confer rights and "call them what it pleases"29. It would be helpful, however, if

Parliament could provide assistance by making the characterisation as clear as possible.

In our hypothetical example, the nature of the access rights granted to the successful bidder will be

relevant to determine:

whether the project entity acquires an interest in land, which will attract transfer duty if granted for

a premium; and

whether, once granted the access right, the project entity will be a "landholder' for landholder duty

purposes.

The answers to these questions will depend on the statutory and contractual framework which is

adopted by the parties.

b. The distinction between a Lease and a Licence

As noted above, the stamp duty outcome for the grant of a lease can be very different compared to

the grant of a licence, which does not confer any interest in land. The distinction however is not

always obvious or easy.

Under a lease one person (the lessor or landlord) gives another person (the lessee or tenant) the right

to exclusive possession of land for a defined term. This creates in the lessee a proprietary interest in

the leased land – relevantly for stamp duty, an "interest in land". In contrast, a licence generally does

not grant exclusive possession, and the grantor of the licence usually retains a right to enter the

premises.

In determining the nature of the rights, the Courts will look at what the parties intended to create, by

examining the language adopted in the agreement between them, and ascertaining their intention

having regard to all of the circumstances. If the circumstance of granting exclusive possession is

attributable to some other legal relationship between the parties, this may point away from a licence

being in substance a lease. For example, if a licensee needs sufficient access to the premises to fulfil

29 Commissioner of Main Roads v North Shore Co Ltd (1967) 120 CLR 118 at 133.



their obligations under a service contract to operate and maintain the plant for the owner, language

suggesting exclusive possession may be explained by that other relationship.

Where the parties use language consistent with a non-exclusive licence, but the true nature of the

contract is to grant exclusive possession, the Courts will treat the arrangement as a lease30.

It is perhaps surprising that there have not been more stamp duty cases around the distinction

between a lease and a licence. It is not uncommon in practice to see a contract containing rather

contradictory language - such as a licence which is described as exclusive, or a lease which

contains an express denial of exclusive possession but also confers quiet enjoyment and gives limited

access to the landlord without consent. In the context of language designed to avoid tenancy

protection laws, the Courts have been prepared to look through "shams" which hide what is truly a

lease. Presumably, the Courts would be prepared to do the same in the context of a lease, dressed

up as a licence, for stamp duty reasons.31

If it is assumed that the access rights in our hypothetical example, amount to either a lease or a

licence, the distinction between the two will likely hinge on the terms of the concession, including:

whether the concession document read as a whole uses the language of a licence or lease; and

the precise rights of the project entity over the land through which the network will run and the

extent to which the State will retain paramount control over the land.

c. Upfront Premium or Pre-paid rent?

In our hypothetical light rail example, it is contemplated that there will be an annual usage charge

payable to the State. However, bidders can offer a lump sum amount in place of this annual charge,

requiring the consortium to forecast likely revenue over the term and to apply a discount factor.

As discussed above, and detailed in Annexure 2, the different stamp duty treatment of rent payable

over the term, and a premium paid on grant of a lease, is now quite stark with lease duty having been

abolished in all States and Territories.

The traditional distinction between "pre-paid" rent and a premium for grant of a lease, has been

whether there is an abatement (or refund) on early surrender of the lease. If there is no abatement

this suggests that the payment wholly related to the grant (which has occurred) and not to the use of

the land over the term. If there is a partial refund by reference to the unexpired portion of the lease

term, this suggests that the payment was a payment in advance for use of the premises.32

d. Identifying "what was paid for what"

This is often the most challenging aspect of applying stamp duty rules to complex contractual

arrangements. Parties negotiating at arm's length are often happy to remain vague as to what

consideration relates to what part of a transaction (often because they have different views as to

30 Refer to para [1513] – para [1521] , Butt, Land Law for a more detailed discussion of these principles. 31 See the decision of the Supreme Court of Victoria in KJRR Pty Ltd v Commissioner of State Revenue (Vic) [1999] VCSA 2

where a clause in the agreement expressly denying the existence of a lease was given paramountcy, absent any suggestion of

a "pretence" or "sham" for stamp duty purposes. 32 See Frazier v Commissioner of Stamp Duties (1986) 17 ATR 64, which is discussed in NSW OSR Revenue Ruling SD 049

and Qld OSR Ruling DA 011.2.1.



worth, benefit and value). They will also often barter competing costs and benefits and set-off

obligations. Often it is only the tax advisers and revenue authorities, faced with determining the tax,

GST and stamp duty aspects of the transactions who will have any need to focus on: "what was paid

for what".

Perhaps the best recent example of this conundrum is the Lend Lease case33 where the Courts were

urged to disentangle a range of "multiple interrelated obligations". The High Court referred back to

the test as stated in Dick Smith: "what was received by the [vendor] so as to move the transfers to

the [purchaser] as stipulated in the agreement."34, and held that the performance of the several

promises of payment stipulated under the development agreement was the consideration which

moved the transfer of the land35.

Clearly the job of the tax adviser and the revenue authority is made easier if the parties clearly set out

what consideration is provided for each part of the transaction. However, failing express agreement, it

is necessary to take a holistic view of the elements of the transaction, and to get to the heart of the

commercial arrangements. As between arm's length parties, any tendency to start with the payments

and then match them to a transaction, or to resort to value to divide up the consideration, should be

avoided as this may not reflect the true commercial arrangements.

Some questions posed by the hypothetical example include:

What is the consideration provided by the consortium for grant of the access rights – does this

include the prepaid rent, the value of the covenants to construct the network and fund the

beautification project and/or the agreement to operate and maintain the network?

Is the nature and the effective life of the construction works relevant to whether they form part of

the consideration? If the term of the arrangements matches or exceeds the expected life of the

infrastructure constructed, the infrastructure will presumably have little or no value to the State at

the end of the term, suggesting that the construction is for the benefit of the consortium and not

part of the consideration provided to the State.

Are the right to retain ticketing sales and the monthly service fees consideration for the

construction only, such that no part of these amounts relate to the grant of the access rights?

What consideration, if any, is attributable to the transfer of the re-zoned industrial land to the

nominated developer?

To what extent is it relevant that the parties may have allocated parts of the consideration to

different aspects of the transactions? For example, if the State paid compensation of $10m to

compulsorily acquire the industrial land, but the developer has valued the land (once re-zoned) at

$100m, what is the value of the non-monetary consideration provided by the bidder to acquire the

land?

33 Commissioner of State Revenue v Lend Lease Developments Pty Ltd [2014] HCA 51. 34 Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3 at [72] 35 At [62].



3.3 Securitised Lease/Licence Structures

Particularly in the area of social infrastructure, securitised lease/licence structures have become

common for greenfield projects. These typically involve the State contracting with the project entity for

the project entity to construct the infrastructure eg public housing, hospitals, prisons etc. with the

State agreeing to pay periodic construction fees. In addition, the project entity agrees to pay a licence

or lease fee to the State for the project entity to access the project site after the construction phase is

completed in order to operate and maintain the infrastructure in return for a service fee. The licence

fees match the construction fees.

The State then assigns the right to receive the licence fees from the project entity to the borrower (a

related entity of the project entity) for receivables purchase fees which match the construction

payments. The borrower sources funding for the project. The effect is that the State is funded by the

borrower for the construction costs during the construction phase. Once construction is completed,

the borrower remains entitled to the licence fees payable by the project entity, which are funded from

the ongoing services payments due from the State to the project entity for operating the infrastructure.

At the end of the term of the arrangement, the infrastructure will revert to the State.

The following diagram illustrates a simplified securitisation structure.

ongoing service fees

receivable purchase fees

assigned licence/ lease fees $X

assignment of right to receive licence/lease fees

Loan

construction fees

$X

State

Borrower Project Entity

Financiers

D & C Contract



From a stamp duty perspective, a securitised lease/licence structure raises the following issues:

In those States which impose duty on the assignment of a right to income from dutiable

property36, does the structure involve an assignment of the licence fees/rent or only of each debt

as and when it arises?37 This distinction will primarily depend on the nature of the source of the

right of the State and the precise terms of the arrangement.

By virtue of holding the lease or licence of the improved land, is the project entity a "landholder"

such that the selldown of interests in the project entity (which typically occur once the construction

phase is completed), attract landholder duty? This will depend on whether the project entity has

any interest in the land and, if so, whether the lease/licence fees are at least equal to the market

value of the lease/licence (which would suggest that the lease/licence has no inherent value).

If there is an early surrender of the licence/lease to the State, will the surrender attract duty? For

example, if the State waives the right to receive licence fees in return for a release from the

obligation on the borrower to pay the receivable purchase payments, will this be viewed as

consideration for the surrender?38

3.4 Stapled Structures

Stapled structures have also become common for infrastructure investments as they allow some flow-

through tax treatment for investors.

A stapled structure typically involves a unit trust and a company (or it could be 2 unit trusts), with their

units and shares "stapled" (in the sense that investors hold units and shares in the same proportions

among each other and can only transfer their units if they also transfer the same proportion of their

shares). For example, an investor may hold 100 units in the unit trust, representing 10% of the total

units on issue. They may also hold 10 shares in the company, representing 10% of the total issued

share capital. If they sell, say, 50 of their units to another investor, they must also sell 5 shares in the

company, as the units are "stapled" to the shares. The unit trust will typically have a company acting

as trustee and each of the investors will also have a proportionate interest in the trustee company.

Rules for dealing in the units and shares will be set out in an Investors Agreement, constitutions

and/or a Stapling Deed.

The unit trust will only hold "passive" investments, such as land or other property rights which are

necessary for the operation of a business. These will then be leased or licensed at market rent or

fees to the company which will apply the property in the operation of its business. Take a tollroad as

an example. The trustee of the trust will hold the access rights or other concessions to the road, and

make these available to the company, which will operate and maintain the tollroad, collect tolls and

pay rent or licence fees to the trust.

36 See for example, the definition of "right" in s16(1)(f) (WA) and the definition of "existing right" in the dictionary (Qld). Query

whether the right to receive licence fees could be "income from dutiable property" even though the holder has no interest in the

underlying land. 37 If the latter, this may still attract duty in Qld if the debtor is resident in Qld and the debt is a "Queensland business asset". 38 If the party taking the interest under a surrender is the State, it may be an exempt transaction in any event.



A simplified stapled structure is set out below.

Some of the stamp duty issues associated with stapled structures are:

Whether transfer duty is payable on the grant of the lease or licence from the land trust to the

operating company. Some of the issues in relation to the grant of leases and licences have been

dealt with above. In the context of a stapled structure, there will usually be no upfront premium

paid for the grant. Also, as the rent/fees are set at market rates, the lease or licence will generally

not have any inherent value.

To the extent that the project involves the holding of an interest in land (eg freehold or leasehold),

the unit trust may be a "landholder", such that changes in interests among investors or the

selldown to new investors will attract landholder duty 39– these aspects are discussed in section 4

below.

If the trustee of the unit trust grants an interest in land to the operating company (such as a lease

or sublease), the operating company may also be a landholder. Again, a lease or sublease with

market rent, may have no value or a value which is less than the landholder thresholds.

However, the analysis becomes more difficult where the operating company makes improvements

to the land, or has extensive "non-fixed" plant and equipment on the land. The current landholder

regime40 does not aggregate the land and goods of the unit trust and the company, even though

they are under common control, and as a result there is the potential for double landholder duty,

or for a lower landholder duty cost, depending on the precise circumstances.

39 CCM Holdings involved a stapled structure. The Court indicated that if the tolling right had been an item of property

separate to the land lease, the sublease to the operating entity would have been relevant in determining the value of the rights. 40 Some States treat the stapled entities as related persons for aggregation purposes. For example, see the definition of

"associated persons" in section 3(1) of the Victorian Duties Act.

Typical

Securitisatio

Typical Stapled

Structure

OpCo

Investors

Land Trust



In the absence of a de minimus rule41, the stapled structure can raise rounding type issues.

Because the units and shares need to be held in the same proportions, some rounding may be

necessary to maintain proportions eg when calls are made on partly-paid units. Small changes in

interests in landholders among investors can create an obligation to make lodgements and pay,

albeit, a small amount of, duty.

41 Section 189(3) of the Qld Duties Act provides an exemption for minor changes in interests where all of the shareholders or

unitholders deal in the shares or units, and rights among them are not changed significantly.



4 Secondary Transactions in Government

Assets

4.1 Introduction of New Investors

Whether the investment takes the form of a long term lease into a stapled structure, a securitisation

model or a simple trust or company structure, the introduction of new investors after the initial

restructure or construction phase, is likely to raise stamp duty issues whenever the investment

includes interests in land. Unless a State has decided to extend tax concessions to the sell-down

process (which they may do, particularly where they are an ongoing investor), the normal incidences

of duty will apply.

As the landholder duty model differs between the States and Territories, the outcomes will differ

depending on the jurisdiction and the form of the investment. The table included as Annexure 3

summarises the main characteristics of the model currently adopted in each State and Territory.

The following general observations can be made:

It is important to test whether an investment vehicle is the most suitable having regard to the

applicable landholder rules. For example, any changes in interests in a private (non-wholesale)

unit trust with Queensland landholdings will attract duty, while changes of up to 50% among

unrelated investors will not attract duty if the investment is held through a company.

Where there are concessions available, it is important to implement and manage the investment

consistently to not lose the benefit of the concessions. For example, if the investment vehicle is a

unit trust with Victorian landholdings, and long term investors are likely to be wholesale investors,

the trust should be established as a wholesale trust and this status maintained after the start-up

period in order to access a 50% acquisition threshold, rather than the more restrictive 20%

threshold.

Careful consideration should be given to the timing of introducing new investors. If the investment

vehicle will only meet the landholder threshold at a future point in time, introducing the investors

prior to this point will reduce stamp duty costs.

Having introduced investors, it is important to make sure that their proportionate interests do not

fluctuate without careful consideration of the implications - such as by allowing partly-paid units or

shares to be paid up at different times, or allowing some investors to contribute capital by way of

debt and other by way of equity.

The interaction of the landholder provisions with the lease provisions which apply in Victoria to the

grant of certain leases, can raise particular issues. For example, a lease granted at a premium

when the project was established (possibly before the lease provisions were introduced) may

result in duty applying on a selldown many years later.



4.2 IPOs

Exiting an investment by way of an initial public float, after the construction phase, or once the

revenue stream has been stabilised, is often an attractive option as it allows the initial investors to

realise their gains from the project earlier than otherwise.

Public floats also enjoy some significant benefits from a stamp duty perspective. This is because

public investors are unlikely to make relevant acquisitions which attract duty in light of the thresholds

which apply in most cases. However, there are a few exceptions which should be borne in mind:

Acquisitions by one or more underwriters may possibly be aggregated and could potentially

exceed the relevant thresholds.

Sections 89B and 89C of the Victorian Duties Act contain special provisions which apply

landholder duty (at the concessional rate of 0.55%) to the conversion of a private unit trust to a

public unit trust, or of a private company to a listed company as part of a public float.42

4.3 Wholesale sales

As noted in the introduction, government infrastructure projects have traditionally been attractive to

Australian superannuation funds and foreign pension funds due to the perception that they provide

relatively stable returns. Those investors will often, although not always, prefer to have a reasonably

significant, but non-controlling, interest in the investment vehicle (eg. an investment of between 10%-

49%). This level of investment may also be attractive from a stamp duty perspective as it is often

below the landholder acquisition thresholds.

In the case of unit trusts with Victorian or Queensland landholdings, it may be beneficial to ensure that

the trust meets the requirements for wholesale status in order to attract the higher acquisition

thresholds (50%, as opposed to nil (Qld) or 20% (Vic)). This presents some unique challenges due to

the very specific (and different) requirements imposed. The rules are summarised in Annexure 4.

A few general observations in relation to the requirements to be a wholesale trust can be made:

The definition of "wholesale investor" in Queensland does not expressly include foreign

equivalents to Australian superannuation funds, a distinction which does not appear to be based

on policy43. This is made particularly difficult by the requirement that all investors are wholesale

investors for landholding trusts;

The requirements for either multiple property holdings in Victoria, or at least 6 unitholders with

subscriptions of at least $3m, make the rules unavailable for single investments or a small

number of wholesale investors, and so do not always lend themselves to infrastructure assets.

42 The application of the former section 89C was discussed in Challenger Listed Investments Ltd v Commissioner of State

Revenue (Vic) [2010] VSC 464. 43 A foreign superannuation or pension fund may be a wholesale investor if the trustee has more than $10m invested in

wholesale unit trusts.



The ongoing need to test that the rules are met on each change in interests (immediately before

and immediately after, in the case of Queensland) makes access to the concession

administratively difficult and restrictive.

4.4 Hypothetical Exit – Airport Asset

Consider an airport owned by a group of three unrelated investors though a stapled structure44. The

airport is held under a long term lease from the Commonwealth by a unit trust, and subleased by the

trustee of the unit trust to an operating company who operates and manages the airport.

The investors (having held the investment for three years) are considering a number of exit strategies:

Option 1 – Separate Sales: De-stapling the units in the trust from the shares in the operating

company and selling each to different investors, targeting wholesale investors for the unit trust

and organisations with airport management experience for the operating company. Ultimately, a

100% interest in the trust is sold to 5 unrelated wholesale investors, each acquiring a 20%

interest.

Option 2 – IPO: A widely held public float of the stapled entities, with investors receiving units in

the unit trust which are stapled to shares in the operating company. The existing investors retain

no interests in the trust.

Option 3 – Partial Sale: Sale to 2 passive unrelated wholesale investors, with the existing

investors retaining a combined interest of 50%, and each new investor acquiring a 25% interest.

Each of these will give rise to quite different stamp duty outcomes, both as between the options and

depending on the relevant State or Territory where the airport is located. The following table

summarises the outcome in each of NSW, Victoria and Queensland assuming all operations are in the

relevant State or Territory, the trust is a "landholder", the operating company is not a landholder, and

none of the sales to investors are aggregated. 45

For the purposes of illustration, the dutiable value of the dutiable "landholdings" is assumed to be

$100m and the trust is assumed to have non-land dutiable property valued at $10m (of which $1m is

"goods"):

State/Territory Option 1 (Destapling) Option 2 (IPO) Option 3 (Partial sale)

NSW (a similar outcome can

be expected in WA, SA. NT,

ACT and Tasmania)

Provided no investor

acquires a 50% or greater

interest in the trust, no

landholder duty will arise.

No duty.



interest, no landholder duty

should apply. A 90%

threshold will be relevant

(other than in Tasmania) if



interest, no landholder duty

should apply.

No duty.

44 For the purposes of the example, the Mirror Taxes legislation and any Commonwealth restrictions on airport ownership have

been ignored. 45 Note that acquisitions involving two or more unrelated investors may be aggregated if their acquisitions arise from

substantially one arrangement.



State/Territory Option 1 (Destapling) Option 2 (IPO) Option 3 (Partial sale)

the units in the entities are

quoted prior to any allotment

or transfer to incoming

public investors.

No duty.

Qld If trust is not a "wholesale

trust" each acquisition of

interests will attract duty on

the value of dutiable

property. Unless the trust

was established as a

wholesale trust by a Funds

Manager, it is unlikely to

qualify as a wholesale trust.

Duty = $6.33m (on $110m

dutiable property)

Once listed, should not

attract duty provided no

single investor, together with

associates, acquires a 90%

or greater interest.

No duty.

Unless the requirements for

the trust to be a wholesale

trust are satisfied (which is

unlikely), the acquisition of

any interest will attract duty.

Duty = $3.17m (on 50%

interest in $110m dutiable

property)

Vic If trust is not a "wholesale

trust", acquisitions of

interests of 20% or more will

attract landholder duty.

Duty = $5.5m (ie duty on

$100m landholdings)

Section 89B will apply to

treat the float as a relevant

acquisition of a 100%

interest in the trust with duty

(payable by the trustee)

applying at the concessional

rate of 0.55%.

Duty = $550k (on $100m

landholdings at

concessional rate)

Unless the requirements for

the trust to be a wholesale

trust are satisfied, the

acquisition of a 20% or

greater interest will attract

duty. As the trust only holds

one parcel of land and there

are less than six unitholders,

the requirements for a

wholesale trust will not have

been satisfied.

Duty = $2.75m (on 50%

interest in $100m

landholdings)

What is perhaps most striking about the above outcomes is the wide range of stamp duty implications,

from significant duty cost (up to $6.33m) to no duty implications, often without any clear policy basis

for the distinction. This is, of course, not an outcome limited to infrastructure investments. However,

in the context of the broader community needs which these types of investments support, it would be

good to see government intervention to have clear policy based outcomes.

_______________________________________________________



ANNEXURE 1 – STATE AND COMMONWEALTH EXEMPTIONS

A. STATE EXEMPTIONS FROM STAMP DUTY

State Legislative Provisions Effect

ACT Section 4 Duties Act The Territory (as defined in the Legislation Act) is not liable to pay duty under the Duties Act. However, "prescribed

territory entities" are not exempt from paying duty (see section 9 Taxation (Government Business Enterprises) Act.

NSW Section 308 Duties Act

Schedule 2 Duties Act

Crown (including any statutory body representing the Crown) not liable unless Duties Act (see Schedule 2) or any other

Act expressly imposes a liability capacity.

NT Item 1, Schedule 2, Stamp Duty Act

Section 10 Stamp Duty Act

Conveyance to the Territory or to a Government Business Division declared by regulation as exempt or to an authority

of the Territory other than a Government Business Division is exempt from duty.

An instrument to which a statutory corporation or a Government Business Division is a party is not exempt unless the

instrument is of a class exempted under the Duties Act from duty.

QLD Section 6 Duties Act

Section 426 Duties Act

The State (which is defined to include a body or instrumentality that represents the State) is not liable to pay duty unless

the Duties Act expressly provides otherwise.

SA Item 13B, Part 16, Schedule 2, Stamp

Duties Act

Conveyance to the Crown or any person on behalf of the Crown (not being a surrender to the Crown, or any such

person, of a lease or other interest in land in order that the Crown may grant to a person other than the surrender or a

lease of, or other interest, in the same land or any part thereof.

TAS Section 227(1)(d) Duties Act Exempts any instrument on which duty would otherwise be payable by a person constituted or appointed under an Act

or under the Royal prerogative to administer or control any department, business, undertaking or public institution on

behalf of the State who is exempted by proclamation from payment of all duties under the Duties Act.




VIC Section 6 Duties Act


No duty is chargeable in respect of a transfer of dutiable property to the Crown in right of Victoria.

WA Section 3 Duties Act


An exempt body (which includes the State of Western Australia) or a public authority which the Minister declares to be

an exempt body is not liable to duty on a dutiable transaction if the exempt body is the only party liable to pay duty.

B. EXEMPTIONS FOR COMMONWEALTH AND OTHER STATES


ACT Section 73 Duties Act A transfer of dutiable property to a State or another Territory is exempt from duty. A transfer to a prescribed authority

of the Commonwealth, a State or another Territory is exempt from duty.

NT Item 2, Schedule 2 Stamp Duty Act Conveyance to the Commonwealth or to an authority of the Commonwealth is exempt.



ANNEXURE 2 – STATUTORY PROVISIONS IN RELATION TO

PREMIUMS ON LEASES

State When the grant of a lease is dutiable Dutiable value of a lease

ACT Duty is payable on the grant of a commercial lease with premium. A

commercial lease means a lease granted for commercial purposes only or

more than one purpose including commercial purposes. A premium means

any consideration (being the amount of a monetary consideration or the

value of non-monetary consideration) that is paid or agreed to be paid in

relation to the lease, other than rent reserved.46

The dutiable value of a dutiable transaction that is the transfer of a

commercial lease with premium is the amount of the premium.47

New South Wales Duty is imposed on a lease in respect of which a premium is paid or agreed

to be paid. 48

A premium in respect of a lease entered into pursuant to an option, includes

an amount paid or payable for the grant of the option.49

The dutiable value of leased property transferred by way of a lease is taken

to be the amount of the premium paid or payable in respect of the lease.50

46 Duties Act 1999 (ACT) section 6, section 8(2), section 10(1)(e). 47 Duties Act 1999 (ACT) section 20(3). See also Revenue Circular DAA015 for the circumstances in which the Commissioner will apply duty.

48 Duties Act 1997 (NSW) section 8(1)(b)(viii). 49 Duties Act 1997 (NSW) section 8(3). 50 Duties Act 1997 (NSW) section 21(5).




Northern Territory Duty is only chargeable on the grant of a lease if in addition to, or instead

of, rent payable for the lease, valuable consideration is given for the lease

or for an option under which the lease is granted.51

Duty is imposed on the amount or value of the consideration given in

addition to, or instead of, rent.52

Queensland Duty imposed on the grant of a lease (as an acquisition of a new right)53 Duty is imposed on the total of any of the following amounts that are

payable for the lease:

(a) premiums, fines or other consideration payable for the grant of the

lease;

(b) consideration paid for, or the value of, any moveable chattels taken

over by the lessee from the lessor or outgoing lessee;

(c) if, on the leased premises, a business is to be carried on and an

amount in excess of what would be the rent if a business was not

carried on is charged for the lease—the excess amount.54

South Australia Duty is imposed on the grant of a lease as a conveyance on sale.55

In the case of a lease for which any consideration other than the rent

reserved may be paid or agreed to be paid, the amount of the other

consideration shall be deemed the consideration for the conveyance on

sale.56

51 Stamp Duty Act (NT) schedule 1, item 4(2). 52 Stamp Duty Act (NT) schedule 1, item 4(3).

53 Duties Act 2001 (Qld) section 9(1)(f).

54 Duties Act 2001 (Qld) section 11(4).

55 Stamp Duties Act 1923 (SA) item 3 schedule 2, section 60.

56 Stamp Duties Act 1923 (SA) section 64.




Tasmania Duty is payable on the grant of an interest in land. However, an exemption

applies to a lease, excluding premiums of more than $3,000 paid for or in

connection with the grant of the lease.57

Duty imposed on higher of:

(a) the consideration (if any) for the dutiable transactions (being the

amount of a monetary consideration or the value of non-monetary

consideration); and

(b) the unencumbered value of the lease.58

Victoria Duty imposed on the granting of a lease for which any consideration other

than rent reserved is paid or agreed to be paid, either in respect of the lease

or in respect of:

(a) a right to purchase the land or a right to a transfer of the land;

(b) an option to purchase the land or an option for the transfer of the

land;

(c) a right of first refusal in respect of the sale or transfer of the land; or

(d) any other lease, licence, contract, scheme or arrangement by

which the lessee, or an associated person of the lessee, obtains

any right or interest in the land that is the subject of the lease other

than the leasehold estate.59

Duty imposed on the greater of:

(a) any consideration (being the amount of a monetary consideration

or the value of a non-monetary consideration) other than rent

reserved that is paid or agreed to be paid; and

(b) the unencumbered value of the land that is subject to the lease.60

57 Duties Act 2001 (Tas) section 6(1)(b)(iii) section 53(d). 58 Duties Act 2001 (Tas) section 18(1).

59 Duties Act 2000 (Vic) section 7(1)(b)(v).

60 Duties Act 2000 (Vic) section 20(3).




Western Australia Duty is imposed on the grant of a lease (being the acquisition of "new

dutiable property"). However, a lease is not new dutiable property if no

consideration is paid or agreed to be paid for the grant of the lease.61

Duty is payable on the total of the following amounts:

(a) the amount of any consideration for the grant of the lease;

(b) any amount paid or payable under the lease as rent that:

(i) is in excess of a fair market rent for the leased property;

and

(ii) represents an amount paid or payable for the grant of the

lease.62

61 Duties Act 2008 (WA) section 18(c).

62 Duties Act 2008 (WA) section 28(4).



ANNEXURE 3 – LANDHOLDER/LAND RICH DUTY

State Land rich

threshold

test

Local land holdings value test

Acquisition threshold Duty base

Companies Trusts

Listed Private Listed Unlisted Widely Held1

Whole–sale unit

Private unit

Land &

fixtures2

Goods

ACT Nil Nil N/A 50% N/A N/A 50% x

NSW Nil $2,000,000 90%3 50% 90%3 90%3 50%

NT Nil $500,000 90%4 50% 90%4 50% x

QLD Nil $2,000,000 90%3 50% 90%3 N/A5 x

SA Nil $1,000,0007 90%3 50% 90%3,6 90%3,6 50%6

TAS 60% $500,000 N/A 50% N/A N/A 50% x

VIC Nil $1,000,000 90%3 50% 90%3 90%3 50%8 20% x

WA Nil $2,000,000 90% 50% 90% 50%

1 There are differing requirements must be satisfied in order to be considered as “widely held”.

2 “Land” is defined for these purposes and varies between jurisdictions.

3 Duty applies at a concessional rate of 10% of the duty otherwise payable.

4 The threshold may be 50% for a “merger vesting” of shares or units.

5 Duty is imposed on trust creations, acquisitions and surrenders independently of the landholder duty regime.

6 There is a separate regime for trusts that are not a registered MIS, PST or ADF in South Australia.

7 From 1 July 2018, this value test will no longer apply ( see Statutes Amendment and Repeal (Budget 2015) Act 2015 (SA) s 52).

8 Various requirements must be satisfied in order to qualify as a wholesale trust.



ANNEXURE 4 – REQUIREMENTS FOR WHOLESALE TRUST STATUS

Requirement Queensland Victoria

Threshold requirements Wholesale Unit Trust: s 72.

(1) A wholesale unit trust is a unit trust, other than a listed

unit trust—

(a) that is established and managed by a

funds manager; and

(b) the units in which are predominantly

acquired by, for or on account of,

wholesale investors.

(2) A wholesale unit trust includes a unit trust that holds

land in Queensland, or has an indirect interest in

land in Queensland, only if the trust was

established, and continues, solely for the investment

of funds placed with it by wholesale investors using

the funds manager’s funds management and

investment services.

(3) However, for a trust acquisition or trust surrender of

a trust interest in a trust, a unit trust is not a

wholesale unit trust if—

(a) the trust is established or managed for a

particular person; or

(b) subsection (1)(b) or if applicable

subsection (2) is not satisfied before and

after the trust acquisition or trust

surrender.

(4) For subsection (3), a trust acquisition or trust

surrender of a trust interest in a unit trust includes a

series of trust acquisitions or trust surrenders under

Wholesale Unit Trust: s 89S.

89S Registration of wholesale unit trust schemes

(1) On application by the trustee of a unit trust scheme, the Commissioner

may register the unit trust scheme as a wholesale unit trust scheme if

the Commissioner is satisfied that the scheme meets the criteria for

registration as a wholesale unit trust scheme.

(2) The criteria for registration as a wholesale unit trust scheme are—

(a) the scheme was not established for a particular investor;

and

(b) either—

(i) the trustee of the scheme, as trustee, holds

directly or indirectly an interest in not less than

3 parcels of land (whether in or outside

Victoria), and at least 2 of those interests each

have an unencumbered value of $10 000 000

or more; or

(ii) at least 6 of the unit holders in the scheme

who are not associated persons each have a

subscription under the scheme of not less than

$3 000 000; and

(c) not less than 70% of the units in the scheme are held by

qualified investors; and

(d) no qualified investor, either alone or together with

associated persons, holds 50% or more of the units in the

scheme; and

(e) registration is not being sought for the purpose of, or as

part of a scheme or arrangement with a collateral purpose




an arrangement.

(5) If subsection (3) applies to a unit trust, the trust is

not a wholesale unit trust from immediately before

the trust acquisition or trust surrender or the first

acquisition or surrender under the arrangement.

of, avoiding or reducing duty otherwise chargeable under

this Part.

(3) For the purposes of subsection (2)(b)(i), the Commissioner may treat 2

or more parcels of land as a single parcel of land if he or she is

satisfied that it is appropriate to do so, having regard to—

(a) the ownership of the parcels of land; and

(b) the proximity of the parcels of land; and

(c) the use of the parcels of land; and

(d) any other matter the Commissioner considers to be

relevant.

Duration of registration is three years (section 89V(2)(a)).

Funds Manager Section 73: A funds manager is:

(a) a body corporate that provides funds management

and investment services to wholesale investors as its

principal business if -

(i) the body corporate manages funds of

more than $500,000,000 invested with it;

and

(ii) the business is not conducted to provide

the services only to particular wholesale

investors; and

(iii) the body corporate is recognised by

other funds managers as a competitor

with them for the services; or

(b) a body corporate that is a member of a corporate

group of a financial institution or an insurer whose

principal business is providing funds management and

investment services to wholesale investors if -

(i) the body corporate or the corporate

group manages funds of more than

$500,000,000 invested with it by

N/A




wholesale investors; and

(ii) the business is not conducted to provide

the services only to particular wholesale

investors; and

(iii) the body corporate is recognised by

other funds managers as a competitor

with them for the services.

(2) Subsection (3) applies if the commissioner is satisfied

a body corporate or corporate group will provide

funds management and investment services to

wholesale investors to the extent mentioned in

subsection 1(a) or (b) within the start-up period.

(3) The commissioner may treat the body corporate as a

funds manager for the start up period.

. . . .

(5) In this section –

insurer means –

(a) a person who is authorised under the Insurance

Act 1973 (Cwlth) to carry on an insurance

business; or

(b) a life company.

start-up period, for a body corporate, means 1 year after the first

acquisition by a wholesale investor of a trust interest in a unit

trust established and managed by the body corporate.

Qualifying investors / wholesale

investors

Section 74: A wholesale investor in a wholesale unit trust is -

(a) a funds manager, other than the funds manager that

established and manages the trust, investing funds of

another wholesale unit trust managed by the funds

manager; or

(b) the trustee of another wholesale unit trust investing

funds of another wholesale unit trust managed by the

trustee; or

Section 89P a "qualified investor" in a unit trust scheme means a person who holds

units in the unit trust scheme in any of the following capacities:

(a) as trustee of a complying superannuation fund that has no less than

300 members;

(b) as trustee of a complying approved deposit fund that has no less than

300 members;

(c) as trustee of a pooled superannuation trust;




(c) the trustee of a superannuation fund under the

Superannuation Industry Act having more than

$10,000,000 in assets; or

(d) a person who has more than $10,000,000 invested in

wholesale unit trusts.

(d) as trustee of a public unit trust scheme;

(e) as trustee of a wholesale unit trust scheme;

(f) as a listed company;

(g) as a life company, if its holding of the units in the unit trust scheme is

an investment of a statutory fund maintained by it under the Life

Insurance Act 1995 of the Commonwealth;

(h) as the Crown in right of the Commonwealth, a State or a Territory

(including any statutory body representing the Crown in right of the

Commonwealth, a State or a Territory);

(i) as, for or on behalf of an entity established and wholly-owned by a

government agency of a State or Territory or the Commonwealth and

primarily used for the purpose of meeting statutory government

liabilities or obligations;

(j) as an agent, nominee or custodian for a person or entity referred to in

any of the preceding paragraphs, in the capacity as such an agent,

nominee or custodian and in accordance with the terms of appointment

of the agent, nominee or custodian;

(k) as custodian or trustee for an investor directed portfolio service, within

the meaning of the relevant ASIC policy statement, if the custodian or

trustee holds its interest in the unit trust scheme for not less than 300

clients as investors through the service, none of whom (individually or

together with any associated person) is beneficially entitled to more

than 20% of the units held by the custodian or trustee in the unit trust

scheme;

(l) in a capacity approved by the Commissioner, which includes certain

foreign equivalents (see section 89P(4)).

Start-up relief See definition of "funds manager" above. Section 98T:

(1) the Commissioner may register the unit trust scheme as an imminent

wholesale unit trust scheme if the Commissioner is satisfied it meets the criteria for

registration as an imminent wholesale unit trust scheme.




(2) The criteria for registration as an imminent wholesale unit trust scheme are -

(a) the unit trust scheme will meet the criteria for registration as a

wholesale unit trust scheme within 12 months after the day on which

the first units in the scheme were issued to a qualified investor; and

(b) units issued in the scheme, before the scheme meets the criteria for

registration as a wholesale unit trust scheme, have been and will be

issued only for the purpose of the scheme meeting those criteria; and

(c) registration is not being sought for the purpose of, or as part of a

scheme or arrangement with a collateral purpose of, avoiding or

reducing duty otherwise chargeable under this Part.

(d) No s89X "disqualifying circumstance".

The duration of the registration is 12 months from the day specified by the

Commissioner: s89V(2)(b).




Disqualifying circumstances Section 73(4): However, if the body corporate or corporate

group does not provide funds management and investment

services as mentioned in subsection (1) in the start-up period -

(a) the body corporate must, within 28 days after the end of

the start-up period, give the commissioner notice of that

fact; and

(b) the body corporate is taken not to have been a funds

manager in the start-up period; and

(c) the commissioner must make an assessment for transfer

duty for each trust acquisition or trust surrender in the

start-up period as if the body corporate were not a funds

manager in the period; and

(d) the start date for the Administration Act, section 54(4), is

61 days after the relevant trust acquisition or trust

surrender.

Section 89X:

(1) For the purposes of this section, "disqualifying circumstance" is:

(a) a circumstance that causes a unit trust scheme that is registered under this

Division to cease to meet the relevant criteria for registration; or

(b) subject to subsection (2), the failure by a unit trust scheme that is

registered under this Division to meet a condition of registration, or the

contravention of a condition of registration by a unit trust scheme or the

trustee of the scheme.

(2) A failure or contravention referred to in subsection (1)(b) is not a

disqualifying circumstance if the Commissioner so determines, being

satisfied that the application of this section to the unit trust scheme in the

particular case would not be just or reasonable.

(3) If a disqualifying circumstance occurs in respect of a unit trust scheme—

(a) the trustee of the unit trust scheme must give the Commissioner notice of

the disqualifying circumstance within 28 days after it occurs; and

(b) the unit trust scheme is taken to have been a private unit trust scheme

from and including the relevant date; and

(c) if an acquisition of an interest in the unit trust scheme that was made on or

after the relevant date is a significant interest within the meaning of section

79(2)(a), it becomes a relevant acquisition; and

(d) the Commissioner must make an assessment of duty chargeable under

this Act as a result of the operation of paragraphs (b) and (c); and

(e) a tax default occurs for the purposes of the Taxation Administration Act

1997 if the whole of any duty assessed under paragraph (d) is not paid to

the Commissioner within 30 days after liability for the duty arose.

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