On 8 August 2024, the Victorian Court of Appeal in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175 confirmed that landholder duty applied on the separate acquisition of shares by 18 investors under a single capital raising. The Court held that that capital raising amounted to substantially one arrangement and therefore was a relevant acquisition for landholder duty purposes.
Background facts
Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd (the Company) was a special purpose vehicle established for property development project.
In 2011, the Company purchased a property in Diamond Creek, Victoria and paid stamp duty on the acquisition.
In 2014, an Information Memorandum was circulated to potential investors (some known to the promoters and others through third party channels), seeking to raise $1.8 million. Under the Information Memorandum, 18 persons applied for a total of $1.92 million of shares. As the offer was over-subscribed, three investors were scaled back.
On 2 July 2014, the Company issued 1.8 million shares to 18 investors (representing 99.99% of the shares on issue in the company). The shares issued to the 18 investors ranged from $50,000 to $200,000 (2.78% to 11.11% of the shares on issue).
Landholder duty was imposed on the transaction by the Commissioner of State Revenue in 2020 – assessing the investors to duty on an aggregated 99.99% interest in the landholdings of the Company – despite no investor or group of otherwise related investors acquiring an interest of 50% or more in the company.
Under the landholder duty rules in the Duties Act 2000 (Vic) (the Duties Act), a person who acquires 20% or more of the units in a private unit trust or 50% or more in a private company that holds land in Victoria with a value greater than $1 million will make a ‘relevant acquisition’ subject to landholder duty on the value of the underlying land held by the company or trust.
For further information, refer to Sladen Legal’s commentary here on the landholder duty provisions.
A person also makes a relevant acquisition if they acquire an interest that, when aggregated with other interests acquired by associated persons, or any other person in an ‘associated transaction’, results in an aggregation that amounts to a significant interest in the landholder. Here, the investors were not associated persons, so landholder duty could only apply if the investors were making acquisitions in associated transactions.
The term associated transaction is defined in the Duties Act as:
associated transaction, in relation to the acquisition of an interest in a landholder by a person, means an acquisition of an interest in the landholder by another person in circumstances in which—
(a) those persons are acting in concert; or
(b) the acquisitions form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions;
It was common ground that the parties were not acting in concert.
Decision
In the Court of Appeal, Kennedy, Macaulay and Lyons JJA upheld the Commissioner’s landholder duty assessment.
The Court had to determine whether the separate acquisitions of shares by 18 otherwise unrelated investors in the shares of the Company under the one information memorandum was a relevant acquisition because they occurred under substantially one arrangement.
The Court considered that the relevant test was whether there was a “oneness” to the acquisitions. Therefore, it was relevant to consider whether there was some connection or interdependence between the circumstances by which the persons acquired their interests.
The Court focussed on 3 key factors from the investments that together showed that there was that necessary “oneness”:
Firstly, the acquisitions were interconnected as no individual acquisition could go ahead unless the subscription reached a total of $1.8 million;
Secondly, the investors entered into a statutory contract constituted by the Company’s constitution. This showed a singularity of undertaking; and
Finally, the effect of the acquisitions of the shares on the same day and in the same way was to alter the shareholding in the Company from being owned by the Oliver Hume group to being owned by a group of private investors.
Key Takeaways
Subject to any further appeals – it is now settled in Victoria that aggregation applies to the acquisition of an shares or units by otherwise unrelated investors under the one syndication or capital raising process.
This means that any syndication process of company or unit trust which holds an existing interest in land is potentially subject to two lots of duty - once on the purchase of the property and then again on the sell down to investors.
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Please contact us for advice on landholder duty or any other State Tax issues.
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Nicholas Clifton
Principal Lawyer
T +61 3 9611 0154 | M +61 401 150 955
E nclifton@sladen.com.au
Meera Pillai
Associate
T +61 3 9611 0179
E mpillai@sladen.com.au
