What is Landholder Duty?
A liability for Landholder Duty occurs when a person or entity makes a relevant acquisition in a landholder.
Landholder duty is an equivalent tax to conveyance duty. Conveyance duty applies to the direct transfer of property ownership from one person or entity to another. Landholder duty is intended to tax indirect property transfers, such as, share transfers in a company that owns land in the ACT.
Who is a Landholder?
A landholder is an entity that has a landholding. An entity may be a private company or a private unit trust scheme.
What is a Landholding?
A landholding is any interest in land in the ACT, other than the interest of a mortgagee, charge or other secured creditor or a profit à prendre.
A landholder will include the entity who owns the legal title of the land. A landholder will also include an entity that constructively owns land through another entity (linked entity) who is the legal title holder of the land, if they would receive 50 per cent or more of the property if all the entities were wound up.
When does a liability occur?
A liability for Landholder Duty arises when a relevant acquisition is made. This occurs when a person or entity acquires an interest in a landholder that is:
- a significant interest
- a further interest beyond a significant interest
- when aggregated with associated persons, amounts to a significant interest
- when persons or entities acquiring interest in a landholder and are acting in concert, or the acquisitions are essentially one transaction, and when these acquisitions are aggregated they amount to a significant interest.
What is a Significant Interest?
A significant interest occurs where a person or entity is entitled to at least 50 per cent of the distribution of property from the landholder on the winding up of the landholder or otherwise.
What are Linked Entities?
In determining whether a company or unit trust is a landholder (and the amount of duty payable on a relevant acquisition), the company or unit trust’s land holdings are not limited to land directly held by the company or on behalf of the unit trust. In certain circumstances, they may include land constructively held by linked entities.
A private company or private unit trust is considered to be entitled to at least 50 per cent of the land through a linked entity structure if the entity is entitled to at least 50 per cent of the (unencumbered) value of the land on the winding up of all linked entities. There is no limit on how many entities may exist between the principal entity and a linked entity provided they meet the criteria of being entitled to at least 50 per cent of the land upon winding up.
Every entity between the liable entity and the landholder who is the legal titleholder of the land is taken to be part of the linked entity structure if they would receive at least 50 per cent of the land if the titleholder and every other entity in between was wound up.
A private company or private unit trust’s entitlement to receive a distribution of property on a winding up of all relevant linked entities is based on a notional winding up of all the linked entities at the time of the relevant acquisition. An entitlement to receive a distribution of property is a reference to what it would receive as a proportional interest (not monetary figures) in the property of any of the linked entities.
Example of linked entity
The above diagram is a simple example of a linked entity structure.
Jamie has recently acquired 100 per cent of the shares in company Green, which owns land 1 valued at $3 million (‘M’). Jamie will be liable for landholder duty calculated on the dutiable value of $3M. Jamie may be liable for additional duty if company Green is held to constructively own additional land in the ACT through linked entities.
Linked entity 1
Company Green has a 75 per cent shareholding in company Blue. If a notional winding up of company Blue occurred, company Green would receive 75 per cent of their property. As company Green would receive over 50 per cent of the property owned by company Blue, they are held to be a linked entity. Company Green would receive 75 per cent of the value of land 2 valued at $5M, which would be $3.75M.
Linked entity 2
Company Blue has a 51 per cent shareholding in company Orange. If a notional winding up of company Orange occurred, company Blue would receive 51 per cent of the property held by company Orange. However, company Green would receive 75 per cent of 51 per cent, which is only a total of 38.25 per cent of company Orange’s property upon winding up. The linked entity structure is broken, as company Green would receive less than 50 per cent of the property of company Orange upon winding up.
Calculation of landholder duty
Land 1 – Legal owner
Jamie would be liable to pay landholder duty on the property directly owned by company Green. The dutiable value would be calculated on 100 per cent shareholdings on land 1 valued at $3M.
Land 2 – Linked entity
Jamie would be liable to pay landholder duty on the property constructively owned by company Green through their 75 per cent shareholding in company Blue. The dutiable value would be calculated on Jamie’s 100 per cent shareholding in company Green multiplied by the 75 per cent shareholding in company Blue multiplied by the value of land 2 at $5M
100% x 75% = 75%
75% x $5M = $3.75M
Land 3 – Broken linked entity
Jamie would not be liable to pay landholder duty on the property owned by company Orange because upon winding up of all the companies between Jamie and company Orange, Jamie would receive only 38.25 per cent of the property, which is below the 50 per cent threshold. As a result, land 3 owned by company Orange would not be included in calculations for landholder duty.
100% x 75% x 51% = 38.25%
What is Unencumbered Land Value?
The unencumbered value of land is different to the average unimproved value (which is the land value used for assessing rates).
Landholder duty is assessed on the unencumbered value of the property, which includes the land and fixtures (house), without reference to any restrictions or debts that lower the property’s value (mortgage, easements or covenants etc).
What is an Associated Person?
A person is associated with another person in the following cases:
- People are associated if they are related people
- Individuals are associated people if they are partners in a partnership to which the Partnership Act 1963 applies
- Private companies are associated people if common shareholders have a significant interest in each private company
- Trustees are associated people if any person is a beneficiary common to the trusts of which they are trustees
- A private company and a trustee are associated people if a related body corporate of the company is a beneficiary of the trust of which the trustee is a trustee
- A public company and a subsidiary public company
- Responsible entities of separate managed investment schemes are associated if there is a member common to both managed investment schemes, and who is beneficially entitled to more than 20% of the property.
Who is a Related Person?
A person is related to another person in the following cases:
- Individuals are related if:
- They are partners, or they have been partners and the partnership has ended (whether the partnership ended in Australia or elsewhere), or
- The relationship between them is that of parent and child, brothers, sisters, or brother and sister
- Private companies are related people if they are related bodies corporate
- An individual and a private company are related people if the individual is a majority shareholder or director of the company or of another private company that is a related body corporate of the company
- An individual and a trustee are related people if the individual is a beneficiary of the trust of which the trustee is a trustee
- A private company and a trustee are related people if the company, or a majority shareholder or director of the company, is a beneficiary of the trust of which the trustee is a trustee.
What am I required to do?
A person or entity who makes a relevant acquisition must lodge an acquisition statement not later than 90 days after the date of the relevant acquisition. A tax default occurs if Landholder Duty is not paid within 90 days of the relevant acquisition.
How is my Duty Calculated?
Value of Acquisition
|less than or equal to $1,500,000||nil|
|More than $1,500,000||A flat rate of $5.00 per $100 applied to the total acquisition value|
Value of Acquisition
|up to $200,000||$20 or $0.70 per $100 or part thereof, whichever is greater|
|$200,001 to $300,000||$1,400 plus $1.20 per $100 or part thereof by which the value exceeds $200,000|
|$300,001 to $500,000||$2,600 plus $1.90 per $100 or part thereof by which the value exceeds $300,000|
|$500,001 to $750,000||$6,400 plus $2.39 per $100 or part thereof by which the value exceeds $500,000|
|$750,001 to $1,000,000||$12,375 plus $3.15 per $100 or part thereof by which the value exceeds $750,000|
|$1,000,001 to $1,499,999||$20,250 plus $3.40 per $100 or part thereof by which the value exceeds $1,000,000|
|$1,500,000 and over||A flat rate of $5.00 per $100 applied to the total acquisition value|
Duty is payable at the determined rate on the amount calculated by multiplying the unencumbered value of all landholdings of the landholder in the ACT as at the date of the relevant acquisition, by the proportion of the value represented by the interest acquired in the relevant acquisition.
Who is Liable to Pay?
The person who makes the relevant acquisition is required to pay duty. If the relevant acquisition results from an aggregation of interests of associated people, the person who made the relevant acquisition and the associated person or people are jointly and severally liable for payment of duty.
Am I Exempt?
In some circumstances, you may be eligible for an exemption from landholder duty, such as:
- When you are a beneficiary of a deceased estate, or
- The transfer is between a married couple or de facto couple pursuant to an order of a court, or under a financial agreement consequent on the end of a marriage, de facto or domestic relationship.
Further details of exemptions can be found in Chapter 3 Part 3.7 and Chapter 11 of the Duties Act 1999 (ACT).
If you have received property from a deceased estate ‘in conformity’ with the trusts contained in the will or arising on intestacy.
Beneficiary of the will
"In conformity" means you’re entitled to the property as the beneficiary (inheriting money or other property) either
- under the terms of the will or
- if the person died without leaving a valid will, under the rules of intestacy.
If a will is contested, the duty chargeable will be determined based on any court orders made. This is because a court order acts as an addition (codicil) to the will, any transfer made under the orders is considered to be a transfer in accordance with the terms of the will of the person who has died.
Transfers not in conformity to the will
The beneficiaries of a will often decide to vary their entitlements.
For instance, one beneficiary may decide to gift or sell part of a property they inherit to another beneficiary. When this happens, the normal rate of transfer duty applies to any part of the property receives that varies from the terms of the will.
If you vary the entitlements under a will this way, you must provide a valuation report as evidence of the value of the property. This is for the purposes of assessing the liable duty.
Here is an example of how transfer duty applies when you vary the terms of the will.
Under the terms of the will, equal shares in the family company are left to John and Lisa by their parent.
- The land held by the company is valued at $2,000,000.
- John agrees to pay $1,000,000 to Lisa in exchange for Lisa’s half shares in the company.
- The 50 per cent of the shares John was entitled to under the will attract no duty.
- However, the 50 per cent John bought from Lisa attracts landholder duty. John will need to lodge a relevant acquisition statement and pay landholder duty within 90 days of acquiring the interest.