Changes in beneficial ownership without changing legal ownership
Examples of when duty applies to changes in beneficial ownership.
Key information
Dutiable property includes:
- full legal ownership of land
- interests in land, even if you do not hold the legal title.
This means you may need to pay duty if you acquire an interest in land, even if the legal owner does not change.
This includes:
- a transfer of an equitable estate or interest in land
- a transaction that results in a change in the beneficial ownership of land.
These transactions are treated the same as transferring legal title, so the same duty rates apply.
Transactions resulting in a change in the beneficial ownership of land
Duty is payable when a transaction 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 term 'beneficial ownership' has a broad meaning and extends beyond merely equitable ownership. For details see Woodfield Constructions v Commissioner of State Revenue (Taxation) [2005] VCAT 2518.
For the purposes of the Act, beneficial ownership includes 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 or joint venture that owns land in Victoria.
The Act also deems a partner in a partnership to have beneficial ownership of each item of partnership property in the same proportion as their interest in the partnership. Therefore, transactions in partnership structures such as a transfer of a partnership interest or the retirement of a partner resulting in the enlargement of the other partner's interests in the partnership will be dutiable where partnership property includes dutiable property.
A change in the capacity in which a person holds dutiable property is also a change in beneficial ownership transaction that attracts duty under the Act (see Rakmy Pty Ltd v Commissioner of State Revenue [2017] 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.
Fixed trust
ABC Pty Ltd as trustee of the ABC Unit Trust owns land in Victoria. The ABC Trust is a fixed trust with 3 named beneficiaries each identified as being entitled to a certain proportion of the trust and trust fund: Mr Green holds 20%, Mr White holds 30% and Black Pty Ltd holds 50%. Under the terms of the trust, ABC Pty Ltd must 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 offers it for sale to Black Pty Ltd. Black Pty Ltd accepts Mr White’s offer and the parties effect the sale of the interest through a contract of sale and a deed of assignment.
As the purchaser, Black Pty Ltd acquires a beneficial interest in Victorian land and must 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.
Joint venture
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 acts as nominee and holds the JV assets in the proportions the parties have agreed to fund the purchase and development of the land: Company A holds 50% and Companies B and C hold 25% each.
Due to Company C failing to make a milestone payment towards the development of the land, Companies A and B exercise their pre-emptive rights under the JV Agreement and acquire Company C’s interest in the joint venture in equal shares. Other than trustee minutes approving the terms of the sale and the acquisition, the parties do not execute any instrument to effect the transaction.
As the arrangement results in Companies A and B’s beneficial ownership in the JV land increasing, they together acquire a 25% beneficial interest in the land. 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.
Partnership structure
ABC Pty Ltd, as bare trustee and nominee of the Land Partnership, owns a property in Melbourne with an unencumbered value of $4 million. The deed establishing the Land Partnership shows that the capital of the partnership is held in equal shares by D Pty Ltd, E Pty Ltd, F Pty Ltd and G Pty Ltd.
The deed also provides that the manager of the partnership, being ABC Pty Ltd, holds the property of the partnership in its name in trust for the partners as an entirety and deals with that property as directed by them. The liabilities of the Land Partnership are $2 million.
Due to a realignment of business interests, D Pty Ltd decides to leave the partnership and offers to sell its 25% interest to a new partner, Z Pty Ltd. D Pty Ltd and Z Pty Ltd enter into an agreement to sell and buy the partnership interest.
For the purposes of the Act, Z Pty Ltd acquires 25% beneficial ownership of the land of the Land Partnership from D Pty Ltd under the transaction. This results in a dutiable transaction involving a change in beneficial ownership in the land with a dutiable value of $1 million (i.e. 25% of $4 million).
Liability and lodgement requirements
The transferee, being the person who obtains the beneficial ownership or whose beneficial ownership increases, completes a dutiable transaction and is liable for duty.
Where a written instrument such as a transfer of land, declaration of trust or Deed of Assignment is executed, the dutiable transaction must be lodged via Duties Online for our determination (Electronic Lodgement). If the change in beneficial ownership transaction does not involve a written instrument, the transferee should contact us by email to arrange lodgement. Similar to a transfer of land, duty is payable by reference to the greater of the:
- consideration (if any) for the dutiable property, and
- unencumbered value of the dutiable property.
Please refer to our summary of current duty rates for further guidance.