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Land Rich Duty1

Peter Allen and Katrina Parkyn, Allens Arthur Robinson

1. Introduction

1.1 Background

Traditionally, every Australian jurisdiction has imposed stamp duty on transfers of real

property and marketable securities. Although duty on transfers of quoted marketable

securities has been abolished in all states, and, in some states, also on transfers of

unquoted marketable securities2, all states continue to impose duty on real property

transfers.

The significant difference between the rates of duty applying to transfers of real property

compared with transfers of marketable securities, and the fact that the value of shares

reflects the net rather than gross value of underlying assets, led to some purchasers

acquiring the shares in a land owning company, rather than a direct acquisition of the

underlying land. The so called 'land rich' provisions were introduced as an anti-avoidance

measure to combat such arrangements although, as discussed below, the focus has in

more recent times shifted from these anti-avoidance origins.

1.2 Overview

In broad terms, the land rich provisions which exist in every Australian jurisdiction apply to

relevant acquisitions of shares or units in what are termed 'land rich' entities.

The types of issues that are relevant to determining whether a transaction is caught by the

provisions commonly include:

(a) understanding what types of entities are potentially caught by the provisions;

(b) determining whether a particular entity is 'land rich';

(c) analysing the trigger for duty in each jurisdiction and the way that duty is assessed

on particular transactions; and

(d) consideration of whether a particular transaction is exempt from duty (in some

cases, it can be equally important to consider whether any previous transactions

were exempt from duty).

Each of these issues raises a myriad of potentially complex sub-issues, which can vary

markedly between the various jurisdictions.

1 This paper is based upon Australian stamp duty laws as at 29 July 2004 and is only intended to provide generalinformation on the topics discussed. It is not intended that this paper provide advice and it should not be relied upon assuch. Advice relating to any specific facts and circumstances should be sought prior to acting.

2 Victoria, Tasmania and Western Australia.

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2. Legislative Framework

The land rich provisions are located in the following legislation:

(a) NSW-Chapter 3, Part 2 of the Duties Act 1997 (sections 106 to 124);

(b) VIC-Chapter 3, Part 2 of the Duties Act 2000 (sections 70 to 89S);

(c) Qld-Chapter 3 of the Duties Act 2001 (sections 157 to 204);

(d) WA-Part IIIBA, Divisions 2,3, 3a and 3b of the Stamp Act 1921 (sections 76 to

76ATL);

(e) SA-Division 5, Part 4 of the Stamp Act 1923 (sections 91 to 102);

(f) Tas-Chapter 3, Part 2 of the Duties Act 2001 (sections 59 to 77);

(g) ACT-Chapter 3, part 3.2 of the Duties Act 1999 (sections 78 to 95); and

(h) NT-Division 8A of the Taxation (Administration) Act 1978 (sections 56C to 56T).

3. Entities to which the provisions apply

3.1 Introduction

In each state and territory, other than Western Australia (WA) and Queensland (Qld), the

land rich provisions apply to companies and trusts. WA and Qld each have separate

regimes for companies and trusts.

3.2 Application to Private Companies

The land rich provisions in every jurisdiction apply to what are generally referred to as

'private companies'.

Basically, a private company is a company that is not limited by shares or whose shares

are not quoted on the Australian Stock Exchange (ASX) or any exchange of the World

Federation of Exchanges.

In some States, the provisions are not as technically accurate as they could be. However,

in practice listed entities are not private companies.

3.3 Application to Listed Companies

Recent changes to the WA Act have extended the application of the WA land rich

provisions to listed companies where at least a 90% interest is obtained. At this stage, the

application of the land rich provisions to listed companies per se is unique to WA although

arguably land rich duty can also be imposed in SA on an acquisition which leads to an

entity ceasing to be listed after the acquisition has occurred.

3.4 Application to Unit Trusts

There is even greater disparity between the jurisdictions in their application of the land rich

provisions to unit trusts.

(a) NSW

The two types of trusts potentially subject to the NSW provisions are:

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(i) private unit trust schemes; and

(ii) wholesale unit trust schemes.

Public unit trust schemes are not subject to the land rich provisions.

A wholesale unit trust scheme is a unit trust scheme3 in which not less than 80%

of the units are held by 'qualifying investors', provided that each qualifying investor

holds less than 50% of the units in the unit trust scheme or, if a qualifying investor

holds units in more than one capacity, the qualifying investor holds less than 50%

of the units in each capacity.

It is worth noting that as the definition of wholesale unit trust scheme is currently

drafted, there are circumstances in which a trust could potentially qualify as both a

wholesale unit trust and a public unit trust. This is a concern since public unit trustschemes are not subject to the land rich provisions at all. It is suggested that the

definition of wholesale unit trust should be amended to make it clear that a

wholesale unit trust is a unit trust that is not a public unit trust. Hopefully, this is

how NSW administers the provision in any event although legislative or

administrative clarification of the point would be useful.

Upon approval by the Commissioner, a unit trust may be regarded as a wholesale

unit trust if, in the Commissioner's opinion, it will satisfy the above requirements

within 12 months (or longer if the Commissioner allows), provided that the only

units issued in that 12 months (or the longer period) from the time theCommissioner gives the relevant approval are issued for the purpose of the unit

trust becoming a wholesale unit trust.

The NSW definition of 'qualifying investor' is an interesting one. To be a qualifying

investor an investor must fit into one or more of the following categories:

(A) trustee of a complying superannuation fund which has not less than 300members;

(B) trustee of a complying approved deposit fund which has not less than 300members;

(C) trustee of a pooled superannuation trust;

(D) trustee of a public unit trust;

(E) life company if its holding of units in the unit trust is an investment of astatutory fund maintained by it under the Life Insurance Act 1995 (Cth);

(F) custodian for a trustee or life company referred to above, in its capacity assuch a custodian; or

(G) trustee of another wholesale unit trust scheme.

In our experience, these classes of qualifying investor do not necessarily reflect thefunds management industry view of what constitutes a wholesale investor.

Another concern is that, based on the categories listed, any trust in which foreign

investors hold 20% of the interests is unlikely to qualify as a wholesale unit trust.

3 Defined in sch 2 of the Duties Act 1997 (NSW).

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Any foreign investors are unlikely to fit within a class of qualifying investor.Hopefully, this is an oversight which will be corrected.

A private unit trust is any unit trust that is not a public unit trust scheme or a

wholesale unit trust scheme.

As noted earlier, public unit trust schemes are not subject to the land rich

provisions. A public unit trust scheme is any one of the following:

(i) a listed trust, being a unit trust scheme any of the units in which are listed forquotation on the ASX or any exchange of the World Federation of Exchanges;

(ii) a widely held trust, being a unit trust scheme which has not less than 300unitholders none of whom, individually or together with any associated person, isbeneficially entitled to more than 20% of the units in the trust;

(iii) an imminent public trust (ie one which the Commissioner is satisfied will satisfy (i)or (ii) within 12 months (or such longer period as the Commissioner may determine)and in which the only units issued during the 12 months (or the longer period) arefor the purpose of the unit trust becoming a public unit trust).

(b) Vic

On 13 May 20044, Vic introduced changes which are broadly consistent with the

changes which took effect in NSW in November 2003.

Vic has adopted the NSW concept of distinguishing between private, wholesale

and public unit trusts. There are however, some notable differences in the relevant

definition of each type of trust.

(i) Public Unit Trusts

Like NSW, public unit trusts are outside the land rich provisions.

There are 4 categories of public unit trust in Vic:

(A) Listed Trust This is a unit trust in which all of the units are listed

for quotation on the ASX or another recognised exchange and are

traded on that exchange. Previously it was enough for some but

not all of the units to be listed for quotation (which is still the

position in NSW) and there was no requirement that the units be

traded. There is no guidance as to the level or frequency of trading

required in order for units to be regarded as being 'traded' for thepurposes of the section.

(B) Widely Held Trust Basically, this only applies to registered

managed investment schemes under the Corporations Act 2001

(Cth) which have at least 300 beneficial unitholders, none of whom

4 State Taxation Acts (Tax Reform) Act 2004

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either individually or with their associates are beneficially entitled tomore than 20% of the units in the scheme. 5

(C) Registered Imminent Public Unit Trust Scheme This basically

allows a trust to register for public unit trust treatment during its

start up phase if the Commissioner is satisfied that the trust will

become listed or widely held within 12 months after the later of the

day on which the first units in the trust were issued or the date of

the prospectus or product disclosure statement for the offer of units

to the public. Units issued before the trust becomes listed or

widely held must be issued only for the purpose of the trust

becoming listed or widely held.

(D) Registered Declared Public Unit Trust Scheme This allows the

Commissioner to declare a trust to be a public unit trust if he is

satisfied that it should be so registered. There is no guidance in

the legislation as to the circumstances in which the Commissioner

would be so satisfied although the application form available from

the Vic State Revenue Office website indicates some of the

matters the Commissioner would consider including:

(1) whether the scheme was established for a particular

investor or group of investors;

(2) the degree of ownership and control a particular investor or

group of investors has over the scheme;

(3) whether the purpose and nature of the scheme is

effectively public; and

(4) whether there are any factors preventing the scheme from

being registered as an imminent public unit trust.

A public unit trust does not include a unit trust that is, or was at any time, a

wholesale unit trust (including an imminent wholesale unit trust) or was

eligible for registration as such. In other words, a trust cannot transition

from wholesale to public unit trust status. Once a trust is a wholesale unit

trust (as defined), it will never be public and therefore never be outside the

land rich provisions (unless, of course, it ceases to be land rich). This is

likely to cause significant problems in practice for any wholesale unit trusts

which subsequently seek to become listed. Under the current provisions,

such trusts will continue to be subject to the Vic land rich provisions. The

policy rationale for this approach is unclear, particularly given that there is

no such restriction upon a private unit trust becoming public.

5 Section 89A of the Duties Act 2000 (VIC) provides a temporary concession from this 20% threshold for widely held trustswhich have 're-purchase facilities' which results in a temporary breach of the 20% threshold. If the requirements of thesection are met the threshold is temporarily increased to 25%.

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(ii) Wholesale Unit Trusts

The Vic wholesale unit trust concept is similar to that in NSW, except that:

(A) the scheme must register with the Commissioner to be regarded as

a wholesale unit trust (there is no self assessment of such status);

(B) the scheme must not be established for a particular investor.

(C) the third requirement is that either:

(1) the trustee must hold directly or indirectly an interest in not

less than 3 parcels of land. At least 2 of those interests

must have an unencumbered value of $10 million or more.

It is unclear what constitutes a 'parcel' of land, although the

Commissioner may treat 2 or more parcels as a single

parcel if he is satisfied that it is appropriate to do so having

regard to the ownership of the parcels, their proximity and

use; or

(2) at least 6 unitholders in the trust, who are not associated,

have a subscription under the scheme of not less than $3million.

Like NSW, wholesale unit trusts must satisfy a requirement that not less

than 80% of the units in the scheme are held by qualified investors. No

qualified investor (alone or with their associates) can hold 50% or more of

the units in the scheme.

The Commissioner can refuse registration as a wholesale unit trust if he

believes it is being sought for the purposes of, or as part of a scheme or

arrangement with a collateral purpose of, avoiding or reducing land rich

duty. Presumably though what the Commissioner is concerned about (and

would focus on) is any manipulation of the requirements for wholesale unit

trust status.

The definition of 'qualified investor' for the purposes of the Vic provisions is

substantially the same as in NSW, except that the Commissioner also has

a discretion to approve an investor as a qualified investor if he is satisfiedthat it is investing in a capacity that corresponds to a capacity referred to

above under the law of an external territory or country outside Australia.

There is scope for a trust to be registered as an imminent wholesale unit

trust. To be registered as such, the Commissioner must be satisfied that

the trust will meet the criteria for wholesale unit trust status within 12

months after the day on which the first units were issued to a qualified

investor and the units issued before the trust meets the criteria for

registration as a wholesale unit trust have been or will be issued only for

the purpose of meeting those criteria. This process offers an important

concession for wholesale unit trusts during their start up phase.

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If an imminent public or imminent wholesale unit trust fails to meet thecriteria for registration as listed, widely held or wholesale status, as the

case may be, within the 12 month period, the trust is treated as a private

unit trust for the whole of that period and the acquisition of any 'significant

interest' during that time 'becomes a relevant acquisition' which is liable to

duty. Penalties and interest accrue if the duty is not paid within 3 months

from the date the liability to duty arose (ie the date of the relevant

acquisition). It is not altogether clear whether the relevant acquisition (and

hence the liability to duty) is taken to have occurred on the day on which

the significant acquisition occurred (ie the actual date of the acquisition) or

alternatively on the date that the acquisition 'becomes a relevant

acquisition'. The conservative view is that it is the former, although the

matter is not entirely free from doubt.

Registration as a declared public unit trust, imminent public unit trust,

wholesale unit trust or imminent wholesale unit trust is effective for:

(A) 3 years in the case of a declared public unit trust or wholesale unit

trust;

(B) 12 months in the case of an imminent public unit trust or imminent

wholesale unit trust.

Registration can be renewed on application.

(c) Tas and the ACT

In Tas and the ACT a private unit trust scheme is a unit trust scheme that is not a

public unit trust scheme. 6 Public unit trust schemes are not subject to the land rich

provisions.

Therefore, the focus is on whether a particular trust is a public unit trust.

Some points to note about the public unit trust test (set out in the previous

footnote) are:

• paragraph (a) refers to a trust in which any of the units are listed for

quotation. This is in contrast to the new Vic provisions;

6 Public unit trust scheme means a unit trust scheme:

(a) any of the units of which are listed for quotation on the ASX or on a recognised stock exchange; or

(b) that is a managed investment scheme within the meaning of chapter 5C of the Corporations Act applies and inrespect of which (1) some or all of the units have been offered to the public and (2) no fewer than 50 persons holdunits in it; or

(c) that, in the opinion of the Commissioner, will satisfy paragraph (a) or (b) within 12 months after the Commissionergives written notice of that opinion to a person who has requested the Commissioner to express that opinion inrelation to the unit trust scheme.

The definition of public unit trust also includes certain unit trusts covered by the Corporations Act provisions prior to theintroduction of the managed investment scheme regime. Such trusts must however meet similar 'public offer' and spread ofownership tests as managed investment schemes.

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• paragraph (b) refers to units having been offered (as opposed to issued) to

the public. One may question whether there are any circumstances in

which units may be offered although ultimately not issued to the public.

There can also be issues in determining how many persons to whom units

must be offered, in order to constitute an offer to the 'public'. This issuewas considered by the High Court in Corporate Affairs Commission (SA) v

Australian Central Credit Union (1985) 157 CLR 201. That case concerned

the issue of whether an offer of units by a credit union to its 23,0000

members was an 'offer to the public' under the prescribed interest

provisions of the then Companies (SA) Code. On the relevant facts, the

High Court ruled that the offer made by the credit union was not an 'offer to

the public'.

The case demonstrates that determining what constitutes an 'offer to the

public' is not purely a question of how many persons to whom the offer is

made. Other factors, such as the nature of an subsisting relationshipbetween the offeror and the members of the group, the nature and content

of the offer and the significance of any particular characteristic which

identifies the group, are also relevant.

(d) SA

The South Australian land rich provisions apply to private unit trust schemes.

A private unit trust scheme is a unit trust scheme in which:

(i) less than 50 persons holds units; or

(ii) 50 or more persons hold units if 20 or fewer persons hold 75% or more in

number or value of the units on issue,

but does not include a unit trust scheme that is an approved deposit fund or pooled

superannuation trust within the meaning of the Superannuation Industry

Supervision Act 1993 (Cth).

It is important to note that unlike the other jurisdictions, the quotation of units in a

trust does not, of itself, preclude the land rich provisions from applying to a unit

trust scheme. However, item 24D of the second schedule to the Stamp Act 1923

(SA) provides an exemption from all stamp duties in respect of a conveyance of a

quoted financial product which should extend to land rich duty. An interest in a

managed investment scheme registered under Chapter 5C of the Corporations Act

is a financial product. Note however that item 24D applies to conveyances only,

and not an issue of units. This can present problems in the context of a public

float, where the unit trust does not, at least initially, meet the requisite 'spread'

requirements.

(e) NT

The NT provisions do not apply to a 'unit trust scheme that is not a private unit trust

scheme'. Therefore, the provisions only apply to private unit trust schemes.

A private unit trust scheme is a unit trust in respect of which the deed:

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(i) has not been approved for the purposes of Chapter 5C of the Corporations Act2001 (or the corresponding provisions of the law in force in a state or anotherterritory); or

(ii) has been approved for the purposes of Chapter 5C, or the correspondingprovisions of the law in force in a state or another territory, but at least one of thefollowing applies:

(A) no units have been issued to the public;

(B) fewer than 50 persons are beneficially entitled to units under the scheme;

(C) 20 or fewer persons are beneficially entitled to 75% or more of the totalissued units under the scheme.

Special rules apply for the purposes of determining the number of persons

beneficially entitled to units. Basically the rules treat all units held by certain

associated persons (widely defined) as though they were held by the one person.

The drafting of these grouping provisions can have a very wide application in the

case of units held by trustees.

Acquisitions in listed unit trusts are excluded from land rich duty by virtue of section

56K(1A)(a) of the NT Act. This section provides that there is no obligation to lodgea dutiable statement in relation to an acquisition if, at time the interest is acquired,

the 'corporation is quoted (ie. listed) on a recognised financial market'. Section 56T

deems the land rich provisions to apply to unit trust schemes as if the scheme were

a corporation. Therefore, the exemption in section 56K(1A)(a) should also apply to

listed unit trust schemes.

(f) Qld and WA

In Qld and WA, trusts are not covered by the land rich provisions so called. Trusts

are governed by entirely separate provisions which, although have some

conceptual similarities, are substantially different in many ways.

4. When is an entity land rich?

4.1 Overview

To determine whether an entity is 'land rich' there are generally 2 tests to apply.

The first test is whether the direct or indirect land holdings of the entity include land located

in the relevant jurisdiction which has a value equal to or greater than a relevant threshold.

This is $500,000 in Tas and the NT. It is $1 million in Vic, Qld, WA and SA. It is $2 million

in NSW. It is nil in the ACT. Except for New South Wales, there has been no attempt to

bring these thresholds in line with market increases.

The second test is the ratio of the entity's land-holdings in all places (world-wide) compared

with its total assets (ignoring certain liquid and other excluded assets – see part 4.3 below).The current ratio is 60% or more in NSW, Vic and WA (down from 80%); 80% or more in

Qld, Tas and SA and nil in the ACT and NT.

As discussed below, the tests for determining the value of an entity's land holdings and

other property are applied on a 'subsidiary' (or in NSW and Vic, 'linked entity') inclusive

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basis. This means that in order to determine whether an entity is land rich you are, inaddition to the landholdings and other property of the entity in which a relevant interest is

acquired, also required to take into account interests held by relevant downstream entities.

In Queensland, the two tests are applied separately to the parent and then to the parent

and subsidiaries together. If the corporation is land rich under either of these tests, it is a

land rich corporation. This prevents a (parent) company which is land rich in its own right

from failing the land rich tests on the basis that it has subsidiaries with significant non land

assets.

The issues commonly raised by the land rich tests in the various states include:

• What landholdings are caught?

• What assets do you count (or not count) for the purposes of calculating the total

value of the entity's assets? As highlighted below, there are some notable

differences between the various jurisdictions.

• How and to what extent is property (including land) held by downstream entities

relevant?

4.2 What landholdings are caught?

For the purposes of the land rich provisions in NSW, Vic, Tas and the ACT, a landholding

is an interest in land other than the estate or interest of a mortgagee, chargee or othersecured creditor or a profit a prendre.7

However, an interest in land:

• is not a land holding of a private company unless the interest of the private

company in the land is a beneficial interest; and

• is not a land holding of a unit trust scheme unless the interest is held by the

trustees in their capacity as trustees of the scheme.

In Qld, a corporation's land holdings means:

(a) the corporation's interest in land and anything fixed to the land that may be separatelyowned from the land other than:

(i) a security interest; or

(ii) an interest in a trust;

(b) rights held by the corporation that:

(i) relate to, or affect, the use of the corporation's land and other land; and

(ii) enhance the value of the corporation's land;

(c) an interest in land, and anything fixed to the land, that is the subject of a purchaseagreement or sale agreement made by the corporation.

7 As to the nature of a profit a prendre refer to paper by Michael Perez, "Equitable Interests" available athttp://www.aar.com.au/pubs/tax/taxsep03.htm

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In Qld, regard should be had to the definition of 'interest' in the Acts Interpretation Act 1936(Qld). It is a wide definition and captures a much broader range of interests in land than

might usually come to mind.

Arising from the decision in Commissioner of Stamp Duties (Qld) v MIM Holdings Limited

(99 ATC 4145), paragraph (b) is an interesting extension to what might ordinarily be

regarded as an interest in land.

In SA, the focus is on the 'land assets' of the entity which covers any interest in land,

including a right to explore for minerals, petroleum or other substances on land or to

recover minerals, petroleum or any other substance from land'. This extended definition is

notable as it picks up interests which might not be caught in some other states. For

example, Qld specifically excludes a right to explore for minerals or petroleum from being

an interest in land8. Whether an interest in an exploration or other mining tenement would

amount to an interest in land in other jurisdictions depends upon the construction of the

applicable mining and petroleum legislation.

The WA and NT legislation is concerned with whether a corporation is 'entitled to land'. In

this context, entitled means 'beneficially entitled'9. Land includes a mining tenement 10 andalso includes any estate or interest in land and anything fixed to land including anything

that is, or purports to be, the subject of ownership separate from the land.

4.3 Excluded Assets

All jurisdictions, other than the ACT and NT11, focus on the proportionate value of the

entity's landholdings compared with other assets. At a practical level, this is often what

determines whether a particular entity is land rich , given the present low dollar value

thresholds.

The relevant threshold varies between 60% and 80% depending on the jurisdiction. As

noted, there is no threshold in the ACT or NT where the only test is whether the entity haslandholdings worth more than the relevant dollar threshold (which is $500,00 in the NT and

nil in the ACT).

In the jurisdictions where there is a threshold test certain property is excluded in working

out the unencumbered value of all of the entity's property (necessary to determine whether

the threshold test is satisfied).

In NSW, the following types of property are not counted:

(i) cash, whether in Australian or other currency;

(ii) money on deposit with any person, negotiable instruments or debt securities;

8 Refer to the definition of 'land' in schedule 6, Duties Act 2001 (Qld) which specifically excludes from the definition of landcertain exploration interests arising under Qld mining and petroleum legislation.

9 Section 76(1) Stamp Act 1921 (WA); section 56C(1) Taxation (Administration) Act 1978 (NT)

10 Refer to definition of 'mining tenement' in section 76(1) of the Stamp Act 1921 (WA).

11 The absence of any proportionate threshold means that the NT and in particular ACT provisions can apply to virtually anyprivate company or private unit trust that owns land in these jurisdictions (subject to the requirement in the NT that the totalNT landholdings be worth at least $500,000).

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(iii) loans that, according to the terms, are to be repaid on demand by the lender orwithin 12 months after the date of the loan;

(iv) if the land holder is a private unit trust scheme or a wholesale unit trust scheme,loans to persons who, in relation to a trustee or beneficiary of the scheme, areassociated persons;

(v) if the land holder is a private company, loans to persons who, in relation to thecompany or a majority shareholder or the director of the company, are associatedpersons;

(vi) land use entitlements;

(vii) units or shares in a linked entity of the land holder; and

(viii) property consisting of an interest as a beneficiary in a discretionary trust.

In addition, property is not counted if the land holder is unable to satisfy the Commissioner

that the property was obtained otherwise then to reduce, for the purposes of the land

holder provisions, the ratio of its landholdings in all places, whether within or outside

Australia, to the unencumbered value of all its property.

The position in Vic, Tas and Qld is substantially the same, except that:

(a) Qld and Vic also exclude amounts paid (ie the deposit) and due (ie the balance

owing) under uncompleted agreements for the sale of land made by the

corporation or a relevant downstream entity;

(b) Qld excludes amounts of unpaid capital; and

(c) Qld does not exclude land use entitlements.

The categories of excluded assets in SA are substantially the same as in the other statesalready mentioned (broadly, cash and other liquid assets).

The categories of excluded assets in WA are quite different. In addition to the types of

property outlined above the following are also excluded:

(i) property consisting of rights or interests under a sales contract (including a forwardsales contract) relating to minerals, primary produce or other commodities;

(ii) a licence or patent or other intellectual property (including knowledge or informationthat has a commercial value) relating to any process, technique, method, design orapparatus to:

(A) locate, extract, process, transport or market minerals; or

(B) grow, rear, breed, maintain, produce, harvest, collect, process or transportor market primary products;

(iii) stores, stockpiles or holdings of minerals or primary products (processed orunprocessed) produced by the company or a related person;

(iv) future tax benefits (whether in the nature or tax losses, capital losses, foreignlosses or foreign tax credits) under the Income Tax Assessment Act 1997 or theIncome Tas Assessment Act 1936 or similar benefits under the laws of anotherjurisdiction.

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Paragraph (iv) is unique to WA. In the other states and territories, it remains an openquestion as to whether tax losses constitute property of a corporation (see EIE Ocean BV v

Commissioner of Stamp Duties (Qld) [1998] 1 Qd R 36).

This is only a summary of the relevant categories and despite some similarities between

states, there are sometimes subtle, yet important, differences in the way that a particular

category is expressed. It is always necessary to look closely at the particular categories,

since it can mean the difference between the entity being, or not being, land rich.

4.4 Tracing Landholdings

Every jurisdiction has comprehensive tracing provisions which basically mean that, in

addition to any interest in land or other property that an entity holds in its own right, it is

also taken to hold an interest in land or other property held by certain downstream entities.

Traditionally, tracing focussed on the interests of subsidiaries, which generally required an

economic interest in the downstream entity of more than 50%. However, in recent times,

this requirement has changed and some states now provide for tracing through to

downstream entities in which the head entity has an economic interest of 20% or more.

(a) NSW and Vic

In NSW, landholdings are traced between entities where there is a 20% or more

ownership relationship between the entities.

In order for an entity to be a linked entity of a unit trust or a private company (the

principal entity), the principal entity must be entitled to receive not less than 20%of the unencumbered value of the property of the underlying entity if all the persons

in the chain (other than the principal entity) were to be wound up.

Example:

A company (the head company) has a 20% interest in company B which in turnhas a 20% interest in company C. As the head company would not be entitled to20% or more of the unencumbered value of all the property of company C,company C will not be a linked entity of the head company (even though companyC is a linked entity of company B). The head company would only be entitled to 4%of the unencumbered value of property of company C.

The provisions preclude tracing through any public unit trust scheme, wholesale

unit trust scheme or a company whose shares are listed on the ASX or an

exchange of the World Federation of Exchanges.

Special rules apply for tracing interests through discretionary trusts. In general

terms, any beneficiary in whose favour capital of the trust may be applied (whether

following the exercise of a discretion or on default) is taken to own or be entitled to

100% of the property the subject of the trust.

The position in Vic is substantially the same as in NSW, requiring you to trace

through to the land and other property to which an entity is entitled to through a

linked entity.

However, under the Vic provisions, there is no minimum ownership requirement for

an entity to be a linked entity of another entity. Rather than focussing on

pjab B0110598722v2 150640 18.11.2004 Page 14

ownership interests in an entity in order to identify it as a linked entity, the focus ison the head entity's entitlement to underlying land and other property of ultimate

underlying entities (regardless of ownership interests).

According to the explanatory memorandum to the State Taxation Acts (Tax

Reform) Act 2004 which introduced the new Vic provisions:

[The] section requires the Commissioner to look at any property held separatelyfrom the land holder and if 20% or more of it would move up to the land holder ifany holding structures were wound up, it is to be included. The relevant entitlementof the land holder is to the property, not necessarily linked to any linked entity.

Consequently, under the Vic provisions the interest that an entity holds in land or

other property held by a downstream entity is the proportion of the land or other

property that the entity would be entitled to receive if all linked entities in the chain

were wound up (as opposed to the entire interest held by the downstream entity).

Land or other property is not counted (ie not attributed to the entity for land rich

duty purposes), unless at least 20% of it is received ultimately from linked entities

on a winding up.

You do not trace through land or other property held by natural persons (even

those acting as trustee) or through any public unit trust or listed company.

(b) ACT and Tas

The position in the ACT and Tas is more traditional (in a land rich duty sense). In

addition to any interest in land or other property that it may hold in its own right an

entity is taken to hold an interest in land and other property held by its subsidiary.

The value of the land or other property that an entity is taken to hold by virtue of its

interest in a subsidiary is that portion which the entity would be entitled to on a

winding up of the subsidiary and every other subsidiary in the ownership chain.

In other words, an entity is only attributed with an interest in the land and other

property of a downstream entity to the extent that the upstream entity would be

entitled to that property on a winding up of the downstream entity.

A private company (Company A) is a subsidiary of another private company

(Company B) if the Company A is a subsidiary of Company B within the meaning

of the Corporations Act 2001 (Cth). The Corporations Act concept of subsidiaryalso covers control, as well as voting and ownership interests held in a

downstream entity.

A private company is a subsidiary of a unit trust scheme if the trustees of the

scheme, in their capacity as trustees of the scheme, have a majority interest in the

private company. A 'majority interest' means an interest of more than 50%.

A unit trust scheme is the subsidiary of a private corporation if the corporation has

a majority interest in the scheme.

There are no provisions setting out when a unit trust scheme will be the subsidiary

of another unit trust scheme. However, if the head trust has a beneficial interest in

pjab B0110598722v2 150640 18.11.2004 Page 15

the property held by the subsidiary trust there would seem to be no need for such adefinition.

Special rules apply tracing interests through discretionary trusts. The provisions

are substantially the same as in NSW. There is however, an ability for the

Commissioner to disregard tracing if he is satisfied that the application of the

provisions in the particular case would be inequitable. No equivalent discretion

exists in NSW although the Commissioner does have an overriding discretion to

treat a particular acquisition as an exempt acquisition if he is satisfied that the

application of the provisions in a particular case would not be just and reasonable.

(c) Qld

A corporation's land holdings and property include those of any subsidiary (unless

the land holdings are held by the subsidiary on trust and the corporation or another

subsidiary of it is not a beneficiary of the trust).

This is referring to the Corporations Act concept of subsidiary.

In addition, each of the following is a subsidiary of a corporation:

(i) a trustee of a trust if the corporation or a subsidiary of it is a beneficiary of the trust(a relevant trust);

(ii) an unlisted corporation in which:

(A) the trustee of a relevant trust (ie a trust referred to in paragraph (i)) has amajority (ie more than 50%) interest; or

(B) a majority interest is held on trust and the trustee of a relevant trust is abeneficiary of that trust.

An unlisted corporation or trustee is also a subsidiary of a corporation if it is a

subsidiary of a subsidiary of the corporation. This allows for comprehensive

tracing of subsidiaries.

In Qld, there is no limitation on the extent of tracing. Once an entity is as a

subsidiary of another entity, that other entity is attributed with 100% of the value of

the subsidiary's land and other property.

(d) SA

The underlying land and other assets of an entity includes the entity's notional

interest in the assets of its related entities but only where the entity has a majority

interest (discussed below) in the related entity, including through a chain of

interests.

Entities are related entities if:

(i) one has a direct interest (ie holds a share or unit) in the other; or

(ii) a series of such relationship (ie direct interests) can be traced between

them through one or more other related entities.

A majority interest is defined to mean a 'proportionate interest' in the entity of more

than 50%.

A proportionate interest is defined as:

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(A) for a person or group having a direct or indirect interest in theentity-the percentage representing the extent of that interest; or

(B) for a person or group that has both a direct and indirect interest in

the entity-an aggregate percentage representing the extent of both

of those interests.

A person has a direct interest if they are the legal and beneficial owner of theshare, or control the exercise of rights attached to the share. A person or group's

direct interest is expressed as a proportionate interest being the highest of the

following percentages:

(1) voting rights at a general meeting of shareholders;

(2) entitlement to participate in dividends or distributions ofincome; and

(3) entitlement to participate in the distribution of assets on a

winding up of the private entity.

Consequently, an entity can be attributed with a notional interest in the assets of an

underlying related entity based on its ability to vote or receive dividends. A right tocapital (on winding up or otherwise) is not required in order for the tracing rules to

apply (compare NSW and Vic).

An indirect interest can be traced through one or more private entities even where

there is a 50% or less interest held between private entities in the chain. However,

an indirect interest cannot be traced if one of the entities in the chain is a listed

company.

(e) WA

The position in WA is largely similar to that in Qld.

In general, a company is taken to be entitled to the whole of the interest held by itssubsidiary (ie. to the extent that the subsidiary is entitled), and not just the amount

referable to the company's interest in the subsidiary.

(f) NT

In the NT, a corporation is deemed to be entitled to land or other property to the

extent that a subsidiary is entitled to that land or other property (which is akin toQld and WA).

Notably, a trustee of a trust in which a company or its subsidiary has an interest

(or, in the case of a discretionary trust, may benefit from) will only be regarded as a

subsidiary if, at the time of the relevant acquisition, the company or subsidiary is

entitled to more than 50% of the value of the property held by the trust. This is a

significant concession compared with the other states which, it is submitted, is

more consistent with subsidiary treatment of corporations (ie. there must be a

majority interest in the trust for its property to be attributed).

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4.5 Uncompleted contracts

In each jurisdiction, specific rules apply where a land holder has entered into an agreement

to buy or sell land and/or other property.

Broadly, both parties under an uncompleted agreement for the transfer of land are taken to

be separately entitled to the whole of the land.

In other words, the most advantageous position for the revenue is adopted.

Each jurisdiction has provisions dealing with the reassessment of duty if the contract is

completed, rescinded or annulled.

The SA provisions do not deal specifically with uncompleted contracts in relation to land or

other property. There is however a specific provision dealing with the valuation of interests

in land under uncompleted contracts or options.

Section 100 provides:

If an interest in land consists of an interest arising under a contract or option to purchase theland, the interest is to be valued, for the purposes of this Part, by subtracting from themarket value of the land the amount that the purchaser under the contract or the holder ofthe option would be required to pay in order to complete the purchase.

In other words, the purchaser is treated as having an interest equivalent only to the amount

of any deposit it has paid. This is a significant departure from the position in most other

states.

In WA, NSW and Vic the following rules apply to uncompleted contracts relating to property

other than land:

(i) where the land holder is the seller-the agreement is taken to have been

completed;

(ii) where the land holder is the acquirer-the agreement is disregarded.

The effect of these rules is that property, other than land, which is subject to contract is not

counted for the purposes of working out whether an entity is land rich.

5. Trigger for duty

5.1 Relevant Acquisition

If an entity is 'land rich' the final requirement to trigger a liability to duty is a relevant

acquisition, being the acquisition of a sufficient percentage interest in the land rich entity.

In NSW, Vic and the NT a relevant acquisition arises, broadly speaking, where a person

acquires an interest of 50% or more (although the trigger is 20% or more for private unit

trusts (not being wholesale trusts) in NSW and Vic). In Qld, Tas, WA, SA and the ACT the

threshold is more than 50%.

Duty is also imposed on the acquisition of a 'further interest' (ie increasing an existing

majority interest).

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The particular provisions in each jurisdiction are discussed in further detail below.

(a) NSW and Vic

A liability for land rich duty arises when a relevant acquisition is made. However,

in every case this is dependent upon a person acquiring an interest in the land

holder.

A person has an interest in a land holder if the person has an entitlement (other

than as a creditor or other person to whom the land holder is liable) to a distribution

of property from the land holder on a winding up of the land holder or otherwise.

The Vic provisions speak of a person having a 'beneficial entitlement' to a

distribution of property from the land holder. NSW refers only to the person having

an 'entitlement' (which suggests a legal interest).

A person may acquire an interest in a land rich land holder if the person obtains an

interest or the person's interest increases in the land holder regardless of how it is

obtained or increased.

A relevant acquisition can arise in 1 of 4 ways.

(i) a person acquires a 'significant interest';

(ii) a person acquires an interest that, when aggregated with other interests

held by that person or an associated person, amounts to a significant

interest;

(iii) a person acquires an interest that, when aggregated with other interests

acquired by the person or other persons under substantially one

arrangement between the acquirers (referred to in Vic as an 'associated

transaction'), amounts to a significant interest; or

(iv) a person who has a significant interest in a land holder, whether alone or

on an associate inclusive basis, acquires a further interest in the landholder.

For the purposes of determining whether an acquisition has given rise to a relevant

acquisition, the Vic provisions only require transactions which have occurred within

the preceding 3 years to be aggregated under either paragraphs (ii) or (iii). There

is no such limitation in NSW and therefore, for the purposes of working out whether

a relevant acquisition has occurred in NSW, the time frame for aggregating

previous acquisitions is unlimited. While NSW excludes from the calculation of

duty acquisitions made outside the three year period, a relevant acquisition can

occur earlier under the NSW provisions, leading to duty on any additional interests

acquired in the last three years.

Consequently, while it is possible in Vic (and some other jurisdictions) for a person

to gradually increase their interest over time without triggering a relevant

acquisition (and therefore not pay any duty), this is not the case in NSW and

therefore the NSW provisions can apply to a greater number of transactions when

compared with the provisions in the other jurisdictions. Similar issues arise in the

NT, ACT and Tas. The time frame over which a person acquires their interest does

pjab B0110598722v2 150640 18.11.2004 Page 19

become relevant to the calculation of duty on a relevant acquisition (broadlyspeaking duty is calculated only by reference to acquisitions made during the

preceding 3 years).

What constitutes a significant interest varies depending on whether the entity in

which the interest is acquired is a private unit trust scheme, a wholesale unit trust

scheme or a private company.

A person who has an interest in a land holder has a significant interest in that land

holder if, in the event of a distribution of all the property of the land holder

immediately after the interest was acquired, the person would be entitled to:

(i) in the case of a private unit trust scheme- 20% or more of the property

distributed;

(ii) in the case of a land holder other than a private unit trust scheme (ie a

wholesale unit trust scheme12 or a private company) – 50% or more of the

property distributed.

The introduction of the 20% threshold for private unit trust schemes is a radical

change from the previous provisions. Changing the trigger for private companies,

and wholesale unit trusts to '50% or more' (where it was previously more than 50%)

is a more subtle, but still important, change.

Broadly speaking, to determine whether a significant interest has been acquired

(which is relevant to paragraphs (i)-(iii) above), you do not count an interest

acquired before the date of commencement of the relevant land rich provisions13 or

at a time when the land holder did not hold land in NSW or Vic, as the case may

be.

The new Vic provisions also contain a particular 'relation-back' rule for the

purposes of determining whether a person has acquired a 'significant interest'. Therule is designed to counter potential avoidance schemes where a person who

acquires an interest also acquires the right to obtain an additional interest outside

the 3 years (and thus defeat the 3 year aggregation rules discussed above). To

address this section 79(4) provides that when the subsequent interest is acquired,

the earlier interest and any interests aggregated with it (ie. which occurred within 3

years), are all taken to have occurred as one acquisition. Similar provisions exist

in other jurisdictions, notably Qld, WA and the NT.

Deemed Relevant Acquisition

The recent Vic amendments have introduced the concept of a relevant acquisition

being triggered as the result of a person gaining or acquiring 'control' over a land

rich entity. The concept of acquiring 'control' is different from acquiring an 'interest'

and is a significant departure from the previous provisions.

12 Includes an 'imminent wholesale unit trust scheme' in Victoria

13 Different in each state for unit trusts and private companies

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Section 79(5) of the Vic Act provides that if, within a 3 year period, a personobtains control over a land rich entity, other than by way of a relevant acquisition

(ie other than by acquiring an interest), then the person is deemed to have made a

relevant acquisition of a 100% interest in the land-holder. This is the case

notwithstanding that persons other than the controller may hold interests in the

entity.

A person acquires control in the circumstances set out in section 79(6). The test is

one of practical influence and control (akin to the definition of control in section

50AA of the Corporations Act which is used to identify subsidiaries of an entity).

(b) Tas and ACT

A liability for land rich duty arises when a relevant acquisition is made.

Making a relevant acquisition depends on a person acquiring an interest in the land

holding company or trust.

The provisions are similar to the NSW and Vic provisions.

Acquisition is defined extensively. Tas and the ACT do not have an equivalent to

the NSW provision which refers to obtaining or increasing an interest 'regardless ofhow the interest is obtained or increased'.

A relevant acquisition arises if there is an acquisition of or increase in a majority

interest. As noted above, there is no limit on the time frame over which previous

acquisitions may be aggregated.

A majority interest arises if the person, in the event of a distribution of all the

property of the corporation immediately after the interest was acquired, would be

entitled to more than 50% of the property distributed. The test is the same for

private companies and private unit trusts.

In determining whether a majority interest has been acquired in Tas you do not

count any interest acquired before the introduction of the land rich provisions or an

interest acquired at a time when the private corporation did not hold land in Tas.

The ACT does not have an equivalent provision.

(c) Qld

Land rich duty is payable on a relevant acquisition, which derives from the

acquisition of a majority interest.

A person has a majority interest if the person has an interest in the corporation of

more than 50%.

A person has an interest in a corporation if the person has an entitlement as a

shareholder to a distribution of the corporation's property on its winding up.

Two points can be made about the Queensland concept of interest:

• it is dependent upon a person having an entitlement as a shareholder; and

• it refers to a distribution of property on winding up only, not 'winding up or

otherwise' (compare NSW, Vic, Tas and ACT).

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A person acquires an interest in a corporation if the person obtains an interest orthe person's interest increases, regardless of how it is obtained or increased.

Some examples are given in section 162(2).

Section 162(3) says that an acquisition of shares is not necessary to acquire an

interest in a corporation.

Under the Qld provisions, a person makes a relevant acquisition in a land richcorporation if:

(i) the person acquires a majority interest (ie more than 50% outright);

(ii) the person acquires an interest that when aggregated with:

(A) interests acquired by the person in the preceding 3 years;

(B) interests acquired by related persons of the person in the

preceding 3 years;

(C) interests held by related persons of the person if the person and

the related person become related persons in the preceding 3

years,

results in a majority interest;

(iii) having acquired a majority interest under either (i) or (ii) for which land rich

duty was imposed, the person's interest increases.

Qld also has a unique provision dealing with the exercise of options acquired within

3 years before or after a relevant acquisition.

In effect, sections 158(2) and (3) provide that if a person acquires an interest in a

land rich corporation and within 3 years before or after that acquisition the person

or a related person (either alone or together), acquires a right to acquire an interest

in the corporation (an option) which is exercised (not necessarily within the 3

years), then the person is taken to acquire the interest within 3 years after the first

acquisition. It is important to note that this provision takes into account options

acquired both before and after an acquisition.

Qld has other unique timing rules which explain when an acquisition is taken to

occur:

(A) if there was an agreement to acquire the interest, conditional or not

and paragraph (B) does not apply- the person is taken to acquire

the interest when the agreement is made;

(B) if there was an agreement to acquire the interest, conditional or

not, and the corporation was not land rich at the time the

agreement was made but is land rich when the agreement iscompleted-the person is taken to acquire the interest when the

agreement is completed;

(C) otherwise-when the interest was acquired (ie when the person

becomes entitled as a shareholder to a distribution of the

corporation's property on winding up).

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These timing rules can be particularly important where you are dealing with entitiesthat will become or will cease to be listed following an acquisition (ie floats and

takeovers).

(d) SA

The general principle of the SA land rich duty provisions is that a person or group

that acquires a majority interest, or increases their majority interest, in a land richentity is taken to notionally acquire an interest in the underlying local land assets of

the entity and is liable to duty in respect of that notional acquisition.

Accordingly, the following transactions are subject to land rich duty in SA:

(i) a transaction as a result of which a person or a group has a majority

interest (ie a proportionate interest of more than 50%) in a land rich entity;or

(ii) a transaction as a result of which a person or a group that has a majority

interest in a land rich entity increases their majority interest in that entity.

The legislation makes it clear that a transaction is dutiable even though the person

or group that acquires or increases their majority interest in the land rich entity isnot a party to the transaction or has a passive role in the transaction.

It is interesting to note that the SA provisions apply to transactions which result in a

person or group having a majority interest, as opposed to acquiring a majority

interest.

One may question the significance of the different wording ('has' versus 'acquires').

The answer lies in section 95(5) which provides that if a private entity acquires a

local land asset and, as a result of the acquisition, becomes a land rich entity, the

transaction is not dutiable under the land rich provisions provided that conveyance

duty is paid on the acquisition of the land. This demonstrates that duty can arise

under the SA provisions even though a person does nothing in relation to their

interest in the entity. Duty can therefore arise because the entity becomes land

rich.14

The different focus of the SA provisions also means that technically the provisions

are capable of being construed as imposing duty where as the result of anacquisition an entity ceases to be listed. In practice though this would seem

contrary to the apparent policy of the SA land rich provisions generally which do

not impose duty on an acquisition of shares in a listed entity.

Under the SA provisions it is also arguable that the acquisition of an interest in a

company which is not of itself land rich (either in its own right or taking into account

the assets of associated private entities) but which has a land rich subsidiary (or

rather associated private entity) may give rise to a liability to duty. The issue arises

because of the SA definition of majority interest, which is defined by reference to

14 SA Stamp Duty Revenue Circular 209 confirms that the acquisition or commencement of possession of interests in landrich entities are dealt with by the land rich provisions.

pjab B0110598722v2 150640 18.11.2004 Page 23

person's proportionate interest in a land rich entity. A person's proportionateinterest is measured by their direct and indirect interests in the land rich entity.

Under section 92B a person who has a direct interest in one entity (entity A)which

is related to another private entity (entity B) is taken to have an indirect interest in

entity B. This is similar to (although not as clear as) the operation of the WA

holding company provisions, discussed below.

(e) WA

Consistent with the provisions in most other jurisdictions, a liability to duty arises in

WA where a person makes a relevant acquisition.

A person makes a relevant acquisition:

(i) if the person acquires a majority interest in a company by acquiring aninterest that is:

(A) itself a majority interest in the company; or

(B) when taken with each previous acquisition of an interest in the

company made by the person on or after the relevant day for that

acquisition, a majority interest in a company; or

(ii) if the person already has a majority interest, and they acquire a further

interest in the company.

For the purposes of paragraph (i)(B) above, if a person acquires an interest in a

company (the earlier acquisition) and, after that earlier acquisition, the personacquires another interest in the company (the latter acquisition) because of an

arrangement that was entered into during the 'relevant period', the earlier

acquisition is regarded as having been made on or after the 'relevant day' for the

latter acquisition, even if it is not so made.

The reference to acquisitions made on or after the 'relevant day' for an acquisition

generally means that, subject to certain transitional rules, acquisitions that occur

within 3 years of another are aggregated for the purposes of working out whether

there has been a relevant acquisition. This is similar to the provisions in Vic and

Qld.

An acquisition is not taken into account (ie not aggregated) if, at the time of that

acquisition, the company was not a land holder for the purposes of the land rich

provisions as enacted at that time. This is an important concession which reflects

the recent changes which have reduced the relevant thresholds for determining

whether a company is a land holder under the WA provisions. Acquisitions made

at a time when the entity was listed are taken into account for aggregation

purposes (assuming that the entity was a land holder under the relevant provisions

at that time).

For these purposes, the concept of acquiring an 'interest' in a company depends

upon a person (or the person and their related persons) acquiring beneficially a

right to participate in a distribution of the property of the company on winding up.

The provisions expressly state that a person's interest may increase by a

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cancellation of shares or the variation of rights attaching to shares (section 76(1b)).The definition of acquire focuses on 'acquiring beneficially' which raises issues

similar to those mentioned above in relation to Victoria.

A person acquires a 'majority interest' in a company if the person acquires (on a

related person inclusive basis), an interest in that company such that having

acquired that interest the person would be entitled to participate in a distribution of

the property on winding up to an extent greater than 50% of the value of the

distributable property.

In relation to a land holder that is registered outside WA or otherwise formed or

incorporated outside WA or which is a WA subsidiary of such a company, the

provisions also require you to look at a person's entitlement to participate in a

distribution of the property of the holding company of the land holder. Such an

entitlement is treated as giving rise to an interest in the land holder itself. In some

circumstances a holding company may be a trust. (section 76AR(4)). This is

somewhat similar to the position in SA in that a person does not necessarily need

to acquire an interest in the actual land rich entity in order to trigger duty. Acquiring

an interest in the entity's holding company can suffice.

These 'holding company rules' only apply to corporations incorporated or taken to

be registered outside WA and certain other companies not within division 2).

A person acquires a 'further interest' in a company if the holder of a majority

interest in the company, increases that interest, where the acquisition of

that majority interest was a liable to land rich duty.

Under Division 3 a person can acquire also further interest in a land holder if they

acquire a further interest in the land holder's holding company.

(f) NT

A person is taken to have an 'interest' in a land rich entity if the person has, or

would have on a winding up, an entitlement, as a shareholder, to a distribution of

the entity's property. Like Qld, the focus is on a person's entitlement to participate

'as a shareholder15' in a distribution on winding up.

(i) Under the NT provisions, the concept of how an interest in a corporation

can be 'acquired' is extremely wide.

From 1 July 2004 the concept has been further extended to include certain

declarations of trust, the addition of beneficiaries to a discretionary trust, a change

in control in the trustee of a discretionary trust (where the change occurs within 12

months of a change in control of a beneficiary of that trust and statutory vestings.

These changes were said to be necessary to ensure that the land rich provisions

were 'more closely aligned' with the provisions for direct conveyances (refer to NT

Revenue Circular SD 027 for further details).

15 or unitholder in the case of a unit trust

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A relevant acquisition is the acquisition of an interest in a land rich entity:

(A) that alone constitutes a majority interest in the entity;

(B) that when aggregated with other interests in the entity held by the

person or the person and related persons constitutes a majority

interest in the entity; or

(C) where by the acquisition a person who has a majority interest

(alone or on a related person inclusive basis) acquires a further

interest in the entity.

A majority interest means an interest of 50% or more. Notably, there is no limit on

the time period for aggregating previous acquisitions.

It is worth noting that an acquisition in a listed company is still technically a relevant

acquisition, although there is no obligation to lodge a dutiable statement in such

circumstances (see section 56K(1A)).

5.2 Aggregation

(a) Associates

In all jurisdictions, determining whether a person has made a 'relevant acquisition'is considered on an associate-inclusive basis, which means that the interests of a

person together with any interest held by that person or their associate are

aggregated for the purposes of working out whether a relevant acquisition has

occurred.

The tests for determining who are associates of a person are extremely wide, and

while there are some broad, general similarities in the tests that exist in the various

jurisdictions, they are also quite different.

In all jurisdictions other than WA, the Commissioner has a discretion to treat

associated persons or entities as non-associated if he is satisfied that their

respective interests were acquired and will be used independently and not for any

common purpose (ie not acting in concert).

(b) Non-Associates

NT, NSW, Vic, Qld and WA also have rules dealing with the aggregation of interest

acquired by non- associates if the Commissioner forms the view that the

acquisitions form, evidence, give effect to or arise from what is substantially one

arrangement between acquirers. The ACT has indicated that if it is proposing to

adopt a similar rule that allows for the aggregation of acquisitions by unrelated

persons16.

16 'Revision of Land Rich Duty Rules – Discussion Paper for Consultation – November 2003' ACT Revenue

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6. Charging Provisions

The charging provisions in each jurisdiction operate in broadly the same way in that every

'relevant acquisition' is effectively charged with duty as if it were a conveyance or transfer

of a relevant proportion of the underlying property.

7. Exempt Acquisitions

In most jurisdictions, certain types of acquisitions can qualify as an exempt acquisition.

Generally speaking, duty is not imposed on a relevant acquisition arising from an exemptacquisition. The categories of exempt acquisitions vary significantly between the different

jurisdictions, and some states are more generous in their range of exemptions than others.

We do not propose to set out in detail here the full range of exempt acquisitions in the

different jurisdictions. However, it is relevant to take note of the consequences that can

arise from an acquisition being characterised as exempt.

Under the NSW provisions, interests acquired under an exempt acquisition are still counted

as interests for the purposes of determining whether a subsequent acquisition is dutiable.

DUT028 confirms this approach in NSW. This is arguably also the position elsewhere

other than Qld. In Qld, an interest acquired under an exempt acquisition (other than an

exempt acquisition under section 195) is disregarded for the purposes of aggregation in

determining whether an acquisition gives rise to a relevant acquisition.

Notwithstanding the treatment of exempt acquisitions in NSW and elsewhere it is not

necessarily the case that all interests held by a person are automatically aggregated.

Various jurisdictions quarantine interests acquired before the introduction of the relevantland rich provisions and/or at a time when the entity was not land rich (see, for example,

section 111(3) NSW).

8. Current and Future Directions

The significant changes that have been made in the area of land rich duty, particularly in

NSW, Vic and WA, have been criticised by some as changing the focus of the provisionsfrom anti-avoidance to taxing generally. Certainly, the circumstances in which a

transaction may be caught by the land rich provisions in these jurisdictions have increased,

resulting in an even greater need for taxpayers and their advisors to understand the

breadth of transactions to which the provisions can apply.

One final observation worth mentioning is that although various states have moved to

abolish marketable securities duty, they have also broadened their land rich tax base, such

that many more transactions are now caught than was previously the case. This is

unfortunate, because compared with transfer duty, the land rich provisions are

considerably more complex, making it more difficult for taxpayers to understand their stamp

duty obligations. One may question whether the abolition of marketable securities duty is agood thing, if the 'trade-off' is a more complex regime for taxpayers in the end. Of course,

duty under the land rich provisions is also at the higher conveyance or transfer duty rates,

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rather than marketable securities rates, and is assessed on gross values, rather than netvalues.