Client Update: Are property development agreements subject to stamp duty in Victoria?
6 May 2016
In brief: The Victorian Supreme Court has ruled that a property development agreement is not subject to duty in Victoria unless it relates to all of the landholdings of a landholder. The decision, which is the first to test the extent to which property development agreements are subject to duty in Victoria under the 'economic entitlement' provisions, will be of great interest to property developers. Partner Adrian Chek (view CV) and Senior Associate Tom Tian report.
- How does this affect you?
- What are the 'economic entitlement' provisions?
- The Commissioner's position
- The Victorian Supreme Court decision
- What's next?
- The Supreme Court of Victoria has rejected the Commissioner of State Revenue's interpretation of the 'economic entitlement' provisions (section 81 of the Duties Act 1997).
- Look out for further updates in relation to this decision, as the Commissioner might appeal.
The Victorian 'economic entitlement' provisions extend landholder duty to certain arrangements under which economic benefits (such as rents and profits) are acquired in the landholdings of a private landholder. In all other jurisdictions, landholder or land rich duty broadly only applies to the acquisition of an equity interest in a landholder.
The Victorian Commissioner has sought to apply the 'economic entitlement' provisions to a property development agreement under which a developer might be entitled to 50 per cent or more of the profits or revenue of the subject land.
In BPG Caulfield Pty Ltd v Commissioner of State Revenue, the Supreme Court held that the 'economic entitlement' provisions were intended to specifically prevent the avoidance of landholder duty, and not to generally prevent the avoidance of duty on the transfer of land, or create a separate head of duty with broader application than the landholder duty rules.
Accordingly, the Supreme Court read down the economic entitlement provisions to only apply where the arrangement grants the developer a share in the revenue or profit derived from the sale of all and not merely some of the landholdings of the landholder. Further, landholder duty would not be imposed under the economic entitlement provisions unless the entitlement represents a 50 per cent or greater interest in the value of all the landholdings of the landholder.
Therefore, the Commissioner's assessment of landholder duty was overturned because the property development agreement entered into between BPG Caulfield Pty Ltd and Melbourne Racing Club only related to some of the landholdings of Melbourne Racing Club, being certain land adjacent to the Caulfield race course, and, in any event, the value of the land was substantially less than 50 per cent of the value of all of the land of Melbourne Racing Club.
The decision is welcome, as in our view it is inappropriate as a policy matter for genuine property development arrangements to be subjected to duty under the landholder duty provisions. However, given that the decision substantially reduces the scope of the economic entitlement provisions as applied by the Commissioner in practice, the Commissioner might appeal. As at the date of this publication, an appeal has not been lodged.
It is important to note that the land the subject of the property development agreement in this case comprised only a small proportion of the landholdings of Melbourne Racing Club; and that the Melbourne Racing Club was not presumably in any event an entity that was itself 'for sale' to BPG Caulfield Pty Ltd.
A different result might follow if the owner of the land is a special purpose vehicle which owns only the land that is the subject of a property development agreement, and that vehicle was potentially 'for sale' to the developer.
It remains also to be seen the extent to which the Commissioner will change his previous practice in relation to property development agreements, as a result of this decision.
- Adrian ChekPartner,
Ph: +61 2 9230 4800
- Martin FryPartner, Practice Leader, Tax,
Ph: +61 3 9613 8610
- Tom TianSenior Associate,
Ph: +61 2 9230 5118
- Jennee ChanSenior Tax Counsel,
Ph: +61 3 9613 8537
- Michael GravesPartner,
Ph: +61 3 9613 8814
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