A relevant acquisition occurs when:

  • A person acquires an interest in a landholder that constitutes the acquisition of a significant interest or a further interest in the landholder,
  • A person acquires an economic entitlement in, or control over, a private landholder, or
  • In certain circumstances, a private unit trust scheme is converted to a public unit trust scheme, or a private company is converted to a listed company

Please refer to ss. 78, 81 and 82 of the Duties Act 2000 (the Act) for more information.

Relevant acquisition of a significant interest

A person makes a relevant acquisition of a significant interest in a landholder if they acquire an interest:

  • That is, of itself, a significant interest (i.e. an interest of 20 per cent or more in a private unit trust scheme, 50 per cent or more in a private company or a wholesale unit trust scheme, or 90 per cent or more in a listed company or a public unit trust scheme), or
  • That, when aggregated with other interests acquired by the person, an associated person or any other person in an associated transaction, results in an aggregation that amounts to a significant interest in the landholder

Please refer to ss. 3 and 78(1)(a) of the Act for more information.

Relevant acquisition of a further interest

Once a person has made a relevant acquisition of a significant interest, a relevant acquisition also arises each time the person, an associated person(s) or any other person(s) whose interest was aggregated to constitute the acquisition of the significant interest acquires a further interest in the landholder (irrespective of the size or timing of the acquisition of the further interest).

The only exception is the acquisition of a further interest by a person that has made a relevant acquisition of an interest in a public landholder.

Please refer to ss. 3, 78(1)(b) and 87(3) of the Act for more information.

Relevant acquisition of economic entitlement

If a person, either alone or together with an associated person, acquires (directly or indirectly) within a three-year period an economic entitlement that amounts to an interest of 50 per cent or more, the person is taken to have made a relevant acquisition in the landholder.

A person acquires an economic entitlement if the person acquires shares or units in a private landholder or enters into an arrangement in relation to a private landholder under which the person is entitled to all or any of the following:

  • To participate in the dividends or income of the private landholder,
  • To participate in the income, rents or profits derived from the land holdings of the private landholder,
  • To participate in the capital growth of the land holdings of the private landholder,
  • To participate in the proceeds of sale of the land holdings of the private landholder,
  • To receive any amount determined by reference to any of the above matters, or
  • To acquire any entitlement described above

In recognition of the overlap with winding-up entitlements and the potential for double duty, the application of the economic entitlement provisions is limited to cases where such entitlements are acquired other than by means of a relevant acquisition dutiable under Part 2 of Chapter 3 of the Act.

The intention of the provisions is to extend the way a relevant acquisition may arise under the Act to include arrangements that provide for the immediate enjoyment of the landholder’s land holdings, other than through the acquisition of winding-up entitlements.

In determining the interest acquired under an economic entitlement, regard must be had to the nature of the economic entitlement and the proportion of the benefit obtained under the arrangement.

In relation to a development agreement, this determination is to be made with reference to a developer’s entitlement to the types of benefits described above and not by reference to what the developer may ultimately receive, if anything, under the agreement.

Consequently, where a development agreement provides a developer with an economic entitlement by reference to a stated percentage of the profits of the project and nothing else, the interest acquired for the purposes of the provisions is to be determined with reference to that stated percentage. This is irrespective of whether or not the developer ultimately receives a profit due to cost blow outs.

Conversely, where a development agreement provides a developer with an economic entitlement by reference to gross proceeds alone, the interest acquired is to be determined with reference to the proportion of the proceeds that the developer is entitled to receive under the agreement (regardless of whether the developer is obligated to pay for the costs of the development out of its share of proceeds). Under such an agreement, it would be incorrect to substitute the economic test with one that focuses on the overall net benefit or profit that may ultimately flow to the developer.

However, where the terms of a development agreement allow the developer’s percentage entitlement to be calculated in two or more discrete ways (not a combined entitlement), the Commissioner’s position is that the percentage interest ultimately taken to have been acquired by the developer ought to be calculated by reference to the entitlement that is most appropriate to the facts of the matter.

To this end, regard must be had to the circumstances and facts of the matter, including the nature and effect of the development agreement as a whole. Once a determination has been made, it ought to be apparent whether or not the acquired economic entitlement amounts to an interest of 50 per cent or more.

Where a person acquires an economic entitlement that amounts to an interest of 50 per cent or more, the person is taken to have made a relevant acquisition of that percentage interest in the landholder, unless the Commissioner determines a lesser percentage interest is appropriate in the circumstances.

If duty is payable in respect of the acquisition of the economic entitlement, it is calculated by reference to the unencumbered value of the landholder’s land holdings in Victoria at the time the economic entitlement was acquired. 

Examples of the application of the economic entitlement provisions follow:

Example 1: Share acquisition

A person acquires a class of shares in a private company landholder that entitles the person to 100 per cent of the dividends of the landholder. The shares do not carry any entitlement to a distribution of property on a winding up of the landholder. However, the shares do carry the right to compel a sale of the landholder’s land holdings prior to a winding up of the landholder. In the event that this right of sale is exercised, the proceeds of sale will be paid to the person as a dividend.

In these circumstances, the person will be regarded as having acquired an economic entitlement, being the right to the dividends of the landholder. As the person has acquired 100 per cent of this economic benefit, the person would be taken to have made a relevant acquisition of 100 per cent in the landholder.

Example 2: Development agreement

A landholder that is a private unit trust scheme owns a significant parcel of land in Melbourne in respect of which it has obtained planning approval for three residential towers. However, the landholder has neither the means nor the expertise to undertake this development. In order to proceed with the development, the landholder has entered into an arrangement with Company A under which Company A has agreed to fund and oversee the development of the residential towers.

Under the arrangement, Company A is granted a power of attorney that allows it to act on the landholder’s behalf to the extent necessary to develop the towers, including the power to sell all the apartments on behalf of the landholder and to receive and use the proceeds of sale to cover costs associated with the development (including borrowing costs). After the payment of costs, any remaining profits are to be shared between Company A and the landholder, 70:30.

Although Company A has not obtained any interest in the landholder or in the land itself, it will be regarded as having acquired an economic entitlement, being the right to participate in the profits derived from the land holdings of the landholder. As Company A has obtained 70 per cent of this economic entitlement, it will be taken to have made a relevant acquisition of a 70 per cent interest in the landholder.

Example 3: Dividend linked notes

A private landholder comprising a farmer’s co-operative owns significant  land in Victoria. It wishes to raise capital from the public for substantial investment in its processing capabilities so that it can meet growing demand from overseas markets. Due to its nature as a co-operative, the landholder is unable to undertake a public capital raising and list on the ASX. As an alternative, it has decided to float a wholly owned unit trust on the ASX to which it intends on issuing notes that will entitle the trust to receive payments each and every time the landholder declares a dividend in favour of its shareholders. Under the arrangement, each and every time the landholder declares a dividend, the trust will be entitled to receive a payment equal to the total dividends payable to shareholders (effectively a right to 50 per cent of the profits/dividends available for distribution to shareholders). Other than this entitlement, the notes will not entitle the trust to participate in a distribution of property on a winding up of the landholder and will not carry any voting rights.

Under this arrangement, the trust would be regarded as having acquired an economic entitlement as the notes entitle the trust to participate in the dividends of the landholder and/or to receive an amount determined by reference to such dividends.  Given the notes entitle the trust to effectively receive 50 per cent of the profits/dividends available for distribution to shareholders, the trust would be taken to have made a relevant acquisition of an equivalent 50 per cent interest in the landholder.

Please refer to s81 of the Act for more information.

Relevant acquisition on acquiring control over a landholder

If a person within a three-year period acquires control, either directly or indirectly, over a private landholder, other than by a relevant acquisition dutiable under Chapter 3, then on acquiring that control the person is taken to have made a relevant acquisition of an interest in the landholder of 100 per cent unless the Commissioner determines otherwise. A person may be considered to have acquired control over a landholder if they acquire the capacity to determine or influence the outcome of decisions about the landholder's financial and operating policies.

Similar to the application of the economic entitlement provisions, the application of the control provisions is limited to cases where control is acquired other than by way of a relevant acquisition dutiable under Part 2 of Chapter 3 of the Act, including the acquisition of a dutiable economic entitlement. However, the intention of the control provisions is to ensure that arrangements that provide for the ultimate control of a landholder are also taxable as relevant acquisitions. As a result, the provisions are capable of bringing to duty the indirect acquisition of a subsidiary company or sub trust through the direct acquisition of the parent entity.

The provisions can also apply to a person who is appointed to the board of directors of a landholder (or the corporate trustee of a landholder). Provided the shareholders or unit holders have not made arrangements that allow the director to benefit, or exercise rights which confer benefits similar to holding an interest in the landholder, the Commissioner will take the view that the director has not acquired control (and made a relevant acquisition of an interest of 100 per cent) as a result of such an appointment. Other possible applications of the control provisions follow:

Example 1: Unlimited and irrevocable power of attorney

Example of unlimited and irrevocable power of attorney

In this example, the majority shareholder of a private company grants for valuable consideration an unlimited and irrevocable power of attorney over the rights attaching to its shares in the company to a minority shareholder.

There is an understanding that the majority shareholder will remain registered as a shareholder of the landholder but that the minority shareholder will use the power of attorney over the voting rights attaching to the shares to its advantage.

In such circumstances, the minority shareholder will be considered to have acquired control of the landholder and to have made a relevant acquisition of an interest of 99 per cent.

Example 2: Private unit trust scheme

Example of private unit trust scheme

In this example, Company X acquires all the issued share capital of the six private companies that together own and control a landholder, being a private unit trust scheme. As each company's interest in the unit trust scheme is less than 20 per cent, none of the companies can be considered a landholder under the constructive ownership provisions of the Act.

Consequently, Company X’s acquisition of all the issued share capital in each company would not give rise to a relevant acquisition. However, by acquiring all the shares in each of the companies that own and control the unit trust scheme, Company X has indirectly gained control over the scheme.

As a result, Company X is considered to have made a relevant acquisition of an interest of 100 per cent in the unit trust scheme.

Relevant acquisition on the conversion of a private unit trust scheme or private company

A relevant acquisition also arises if, under an agreement or an arrangement, a landholder that is a private unit trust scheme or private company becomes, through whatever means, a public unit trust scheme or a listed company.

All acquisitions of interests in the private unit trust scheme or private company under the agreement or arrangement are deemed to be a single acquisition of 100 per cent in the public unit trust scheme or listed company. The relevant acquisition is taken to have been made on the date on which the private unit trust scheme became a public unit trust scheme or the private company became a listed company. However, duty is only charged at the rate of 10 per cent of the duty that would be chargeable on a transfer of all the land holdings of the landholder in Victoria (calculated on the unencumbered value of the land holdings at the date of the relevant acquisition).

Please refer to ss. 89B and 89C of the Act for more information.