A transfer of an equitable estate or interest in land or a transaction that results in a change in the beneficial ownership of land attracts duty at the same rates as a transfer of full legal title to land.
Transfer of an equitable estate or interest in land
Under the Duties Act 2000 (the Act), dutiable property is defined to include an estate in fee-simple in land in Victoria. It is also defined to include an “interest” in any dutiable property. This means that the transfer of an equitable estate or interest in land is chargeable with duty in the same way as a land transfer.
Transactions resulting in a change in the beneficial ownership of land
Duty is also payable on a transaction that results in a change in the beneficial ownership of dutiable property (other than a transaction involving units in a unit trust scheme). In this context, the expression “beneficial ownership” has a wide meaning and extends beyond merely equitable ownership (see Woodfield Constructions v Commissioner of State Revenue (Taxation)  VCAT 2518).
For the purposes of the Act, beneficial ownership includes (but is not limited to) ownership of dutiable property by a person as trustee of a trust. It also includes the interest a person may have in a fixed trust, joint venture or trust partnership structure that owns land in Victoria.
A change in the capacity in which a person holds dutiable property is a change in beneficial ownership transaction that is liable for duty under the Act (see Rakmy Pty Ltd v Commissioner of State Revenue  VSC 237).
Other examples of transactions that result in a change in the beneficial ownership of dutiable property (land in Victoria) held under a fixed trust, joint venture and trust partnership structure follow:
ABC Pty Ltd as trustee of the ABC Trust owns land in Victoria. The ABC Trust is a fixed trust with three named beneficiaries each identified as being entitled to a certain proportion of the trust and trust fund - Mr Green as to 20 per cent, Mr White as to 30 per cent and Black Pty Ltd as to 50 per cent. Under the terms of the trust, ABC Pty Ltd is bound to distribute the trust’s income and capital to the beneficiaries in the stated proportions.
One of the beneficiaries, Mr White, wishes to dispose of his interest and has offered it for sale to Black Pty Ltd, being one of the other beneficiaries. Black Pty Ltd accepts Mr White’s offer and the sale/purchase of the interest is effected through a contract of sale and a deed of assignment.
As the purchaser, Black Pty Ltd has acquired a beneficial interest in Victorian land and is required to lodge the deed of assignment and pay duty. As with all land transfers, duty is calculated by reference to the greater of the consideration paid and the unencumbered value of the interest in the land.
Companies A, B and C have entered into a joint venture agreement (JV Agreement) to acquire and develop land in Victoria through an associate company, Z Pty Ltd. Under the terms of the JV Agreement, Z Pty Ltd has agreed to act as nominee and hold the JV assets in the proportions the parties have agreed to fund the purchase and development of the land - Company A as to 50 per cent and Companies B and C as to 25 per cent each.
Due to Company C failing to make a milestone payment towards the development of the land, Companies A and B have exercised their pre-emptive rights under the JV Agreement and acquired in equal share Company C’s interest in the joint venture. Other than trustee minutes approving the terms of the sale and the acquisition of the interest, no instrument is executed by the parties to effect the transaction.
As the arrangement results in Companies A and B’s beneficial ownership in the JV land increasing, they together are taken to have acquired a 25 per cent beneficial interest in the land. Given that no instrument was executed to effect the transaction, Companies A and B are required to complete and lodge a section 14 statement. Duty is calculated by reference to the greater of the consideration paid for the transaction and the unencumbered value of the interest in the land.
ABC Pty Ltd, as bare trustee and nominee of the Hotel Partnership, owns and manages a hotel in Melbourne. The deed establishing the Hotel Partnership shows that the capital of the partnership is held as to 50 per cent by D Pty Ltd, 30 per cent by E Pty Ltd and 20 per cent by F Pty Ltd. The deed also provides that the manager, being ABC Pty Ltd, holds the property of the partnership in its name in trust for the partners as an entirety and will deal with that property as directed by them. Under the deed, the partners have undertaken not to attempt to obtain a partition and/or separate legal title to their interest in the partnership property.
Due to a realignment of business interests, D Pty Ltd wishes to leave the partnership and offers to sell its 50 per cent interest to either one or both of the remaining partners. As neither E Pty Ltd nor F Pty Ltd has the financial resources to purchase the interest, all three parties agree for the interest to be sold to a third party, Z Pty Ltd. Consequently, an agreement to sell a partnership interest is entered into between D Pty and Z Pty Ltd. Upon completion of the agreement, there is an assignment of the partnership interest to Z Pty Ltd.
As the partners have an undivided equitable/beneficial interest in each and every asset comprising the partnership including the hotel, the assignment of the partnership interest to Z Pty Ltd gives rise to a liability to duty as either a transfer of an equitable interest in land in Victoria or a transaction that results in a change in the beneficial ownership of such land.
Duty payable on the assignment of the partnership interest is calculated by reference to the greater of the consideration paid for the assignment and the unencumbered value of a 50 per cent interest in the hotel.
Liability and requirement to lodge section 14 statement
The transferee, being the person who obtained the beneficial ownership or whose beneficial ownership increased, is taken to have made a dutiable transaction and liable for duty.
If the transaction is not effected by a written instrument, the transferee is required to lodge a section 14 statement within 30 days after the date on which the dutiable transaction occurred. To avoid a tax default from occurring, duty must also be paid within this period of time. Similar to a transfer of land, duty is payable by reference to the greater of the:
- Consideration (if any) for the dutiable transaction, and
- Unencumbered value of the dutiable property
Please refer to our summary of current duty rates for further guidance.
Recent Supreme Court decision impacting acquisitions in partnership structures
A recent Victorian Supreme Court matter has considered whether acquiring an interest in a partnership, the property of which included land in Victoria held by a manager as nominee on behalf of the partners, amounted to a presently existing equitable proprietary interest in that land and gave rise to a liability to duty under the Duties Act 2000 (the Act).
The Court held that it did not. It found that the interest acquired was not a vested proprietary interest in any specific property of the partnership but was an equitable chose in action, being a right to a proportion of surplus assets, as a mere expectancy, on the dissolution of the partnership. The interest acquired was not an “interest in an estate in fee simple” within the meaning of the Act.
The Commissioner of State Revenue remains of the view that the acquisition of the interest in the partnership is dutiable and has sought leave to appeal to the Court of Appeal.
Make a voluntary payment of duty under protest
Taxpayers who have acquired an interest in a partnership, the property of which comprises land in Victoria held by a manager or nominee on behalf of the partners, may be liable to duty. They are encouraged to disclose their transactions to the Commissioner, who will put the matters on hold pending the outcome of the appeal.
To mitigate the accrual of interest, taxpayers can make a voluntary payment of duty under protest as part of their lodgement. Duty can be paid in the usual way and a submission included as part of the lodgement advising the Commissioner that the payment is made under protest. The lodgement, including supporting documents, can be submitted electronically or by mail.
Ensuring the subject line reads "Attention: The Manager, Landholder Acquisitions Branch", email firstname.lastname@example.org.
Lodge your payment of duty under protest by mail:
Attention: The Manager, Landholder Acquisitions Branch
State Revenue Office
GPO Box 1641
MELBOURNE VIC 3001
If the appeal is ultimately decided against the Commissioner, taxpayers will be able to seek a full refund of the amount paid within the statutory five-year period.
This statement does not apply to a transfer of land involving the removal or addition of one or more partners to a partnership where the partners hold the land directly. Such transactions are dutiable as a transfer of dutiable property, unless an exemption applies.