IN SUMMARY:
MARQ Trustees writes about a recent Victorian Court of Appeal decision which confirmed the State Revenue Office’s assessment of (stamp) duty on an aggregated basis. It’s a stark reminder to always get expert advice when structuring a property purchase and fund raising.
A recent Victoria Court of Appeal decision highlights the potential stamp duty risks associated with bringing investors into a vehicle (whether a trust or company) which already owns, or has contracted to buy, property; and the importance of always getting expert advice when structuring your purchase and fundraising transactions.
The transaction
A company had acquired a parcel of land in Victoria to carry-out a residential land development project. It paid duty on the acquisition of the property.
It issued an information memorandum (IM) to raise $1.8 million through the allotment of shares in the company, for the development. Ultimately, the money was raised and shares issued to 18 different, “unrelated” investors.
The Victorian State Revenue Office decided to treat the issue of shares to the investors as “substantially one arrangement”, so that the transaction amounted to the acquisition of 99.99% of the shares in the company for landholder duty purposes. This means that the State Revenue Office imposed duty on the issue of the shares, based on the value of the underlying property – effectively, a second amount of duty for the company.
Appeals lost
The company appealed to VCAT (and lost) and has again lost in the Court of Appeal (Victoria), with the Court affirming the Revenue Office’s assessment.
Lessons
The “aggregation” powers under the landholder duty provisions in the Duties Act (Victoria) are very broad. The decision means there is a real risk that when investing in a fund or company which already has an interest in property (including through having signed a purchase contract), investors could be aggregated together for duty purposes, even where they don’t know each other and invest under an offer document.
Great care should be taken when structuring a property acquisition and associated fundraising and you should always obtain expert stamp duty advice.
MARQ has extensive experience in structuring property funds and works with stamp duty and legal experts, helping you to navigate the complex duty rules not just in Victoria but elsewhere around Australia and achieve the optimal outcome for you and your investors.
Read the full judgment here: Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175 (8 August 2024) (austlii.edu.au).
