Key points

• Victoria and the Northern Territory have unique anti-avoidance provisions which deem a person to acquire an interest in a landholder entity if they acquire control over the landholder.
• The ‘acquisition of control’ provisions have a broad scope.
• For future transactions, carefully consider duty implications before changing directors or shareholders of corporate trustees of entities owning land in Victoria valued at AU$1 million or more, or in the Northern Territory valued at AU$500,000 or more.
• To manage any exposure to penalties and interest review prior transactions to determine if there was a requirement to lodge for duty on the basis of this decision.

Tao v Commissioner of State Revenue [2024] VCAT 637

In this case the Commissioner successfully argued that the acquisition of shares in the trustee company and appointment as sole director and secretary of the same trustee company is a deemed acquisition of control of the landholder and therefore a relevant acquisition upon which landholder duty is imposed. The consequence was that a duty of AU$169,702.50 was incurred plus penalties and interest. If not deemed an acquisition of control, no duty would have been payable.

Background

66WR Pty Ltd (Trustee) was the corporate trustee of the WCT Unit Trust (Unit Trust), which was established for the purposes of property development and held a development property in Victoria with a value exceeding AU$1 million.

Mr Constantinou was the sole shareholder, director and secretary of the Trustee. Mr Tao, through a company of which he was a majority shareholder (Amber Investments Pty Ltd) held 25% of the units in the Unit Trust. In 2014 Mr Tao replaced Mr Constantinou as the sole shareholder, director and secretary of the Trustee.

Despite neither Mr Tao nor Amber Investments Pty Ltd acquiring any further units in the Unit Trust, the Commissioner of State Revenue issued an assessment imposing duty of AU$199,650.00 plus penalties and interest. The assessment was issued on the basis that when Mr Tao acquired the shares in the Trustee and was appointed as the sole director and secretary of the Trustee, he acquired the capacity to determine or influence the outcome of decisions about the financial and operating policies of the Unit Trust and therefore obtained control and made a ‘relevant acquisition’.

Legislation

Section 82 of the Duties Act 2000 (Vic) (Duties Act), states that a person makes a ‘relevant acquisition’ (which is dutiable) in a landholder if a person acquires control over a private landholder (a company or trust with landholdings in Victoria with a value of AU$1 million or more).

A person acquires control over a private landholder if “the person acquires the capacity to determine or influence the outcome of decisions about the private landholder's financial and operating policies”.

Decision

The main issue was whether Mr Tao acquired control of the Unit Trust for the purposes of section 82 of the Duties Act, which focused on two questions:

(1) Whether Mr Tao ‘acquired the capacity to determine or influence the outcome of decisions about the financial and operating policies’ of the Unit Trust; and

(2) Whether it is necessary for Mr Tao to obtain an equivalent to a beneficial interest in the Unit Trust for section 82 to be engaged.

Acquires control

The concept of control over ‘financial and operating policies’ envisaged by section 82 of the Duties Act is focused on the strategic direction of a landholder, as opposed to its day-to-day management.

From the time of being appointed as sole director and secretary of the Trustee and sole shareholder of the Trustee, Mr Tao acquired not just the capacity, but the practical ability, to determine or influence the Trustee’s financial and operating policies and the strategic direction of the Unit Trust, which included dealing with the loan of the Trustee that was in arrears, notwithstanding his consultation with Mr Constantinou.

The ability of the two other unitholders of the Unit Trust to remove the Trustee as trustee pursuant to the trust deed to bring any control exercised by Mr Tao to an end, is irrelevant because the two other unitholders never did so.

No incremental beneficial interest

Mr Tao’s beneficial interest in the Trust did not change, he did not obtain further unitholding in the Unit Trust and did not acquire any benefit or ability to exercise rights as a unitholder when he became the sole shareholder and director of the Trustee.

The Tribunal held that it is not necessary that Mr Tao also obtained an interest equivalent to a beneficial interest in the Unit Trust for section 82 of the Duties Act to be engaged.

Commissioner’s discretion as to percentage of deemed ‘relevant acquisition’

The Tribunal held that it is appropriate to take into account pre-existing interests held in the landholder, even where they are not held directly to reduce the extent of the ‘relevant acquisition’.

While the SRO’s assessments were based on an acquisition of 100%, the Commissioner has a discretion to reduce that percentage under section 82 of the Duties Act. The Tribunal held that it is appropriate to reduce the percentage of the relevant acquisition by 15% from 100% to 85% on the basis that Mr Tao held 60% of the shares in Amber Investments Pty Ltd and Amber Investments Pty Ltd held 25% of the units in the Unit Trust. Therefore, Mr Tao already had a 15% interest in the Unit Trust. The Tribunal redirected to the Commissioner to reassess the interest in accordance with the Tribunal’s decision.

Key Takeaways

• Landholder duty can apply where a person is deemed to acquire control of a landholder.
• The ‘acquisition of control’ provisions have a broad scope.
• For future transactions, entities owning land in Victoria or the Northern Territory must carefully consider potential duty implications a result of changes to the shareholding and changes to the board of directors of corporate trustees of landholding unit trusts.