VCAT decision raises stamp duty risks for capital raising
A recent Tribunal decision has implications for how stamp duty applies when a landholding entity raises capital from unrelated investors, HLB Mann Judd cautions.
A decision by the Victorian Civil and Administrative Tribunal highlights the importance of careful tax planning, especially in property fund or syndicated structures, says HLB Mann Judd, partner, tax consulting Josh Chye.
The decision, Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2023] VCAT 634, involved a group of unrelated investors who acquired shares in a landholding company.
1,800,000 shares were offered at $1 per share to the 18 investors, with individual investment amounts ranging from $50,000 to $200,000.
The issue in this case was whether stamp duty would apply if each of the 18 investors individually held a stake below the relevant acquisition threshold.
“In Victoria, if a trust or company owns land valued above $1 million, a ‘relevant acquisition’ in the trust or company triggers landholder duty,” said Mr Chye.
The thresholds for triggering duty are 20 per cent or more for a trust and 50 per cent or more for a company.
The Victorian Commissioner successfully argued for the aggregation of subscriptions for shares in the landholding company by the 18 separate investors.
“Consequently, Victorian landholder duty was assessed based on the total percentage acquired in the company by all 18 investors (99.9 per cent),” said Mr Chye.
“This was the case even though the 18 investors were unrelated, each investor made an independent decision and was not reliant on others and no single investor held a significant interest of 50 per cent or greater in the company.”
The Commissioner argued the investors’ acquisitions were related, connected, and interdependent in a way that was integral to the circumstances.
One of the factors supporting this argument was that the transactions stemmed from the same offer and terms outlined in the information memorandum.
The Commissioner also argued that the transactions were conditional on each other and interdependent as they would only occur if the target subscription was met.
It was also argued the purpose of the transactions was the same, which was to raise $1,800,000 as part of a syndicated managed investment vehicle for a residential development project.
The investors also applied to invest around the same time and under the same offer, with documents defining the common purpose and binding provisions.
The Commissioner also argued it was possible to infer a unity of purpose among the investors, as they invested based on the terms in the IM to support the development of the property and agreed to the company’s constitution, which established the management structure.
“The decision also raises concerns about an administrative concession previously granted by the Victorian State Revenue Office for product disclosure statements or prospectuses lodged with the Australian Securities and Investments Commission (ASIC),” said Mr Chye.
“The applicability of the Commissioner’s position, as stated in a revenue ruling, is now uncertain. Furthermore, it remains unclear how Revenue Offices outside of Victoria will respond to this decision.”
Mr Chye said property developers and fund managers need to approach entity setup, land acquisition and capital raisings with caution.
“It is crucial to navigate these processes carefully to mitigate potential double stamp duty risks,” he said.
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