From 1 July 2019, the corporate reconstruction exemption was replaced with a corporate reconstruction concession. Eligible transactions arising out of corporate reconstructions now attract duty at the concessional rate of 10% of the duty otherwise payable.
Corporate group
A corporate group means a parent corporation and all its subsidiaries. To be a subsidiary, the parent corporation must directly or indirectly hold at least 90% of the beneficial ownership of the subsidiary and be able to cast, or to control the casting of, at least 90% of the maximum number of votes that may be cast at the subsidiary's general meeting.
Members of a corporate group are not limited to companies; they can include unit trust schemes and certain public offer superannuation funds, however discretionary trusts cannot be a member of a corporate group for the purpose of the concession. Furthermore, natural person shareholders do not qualify as members of a corporate group which means that 2 separate entities each having the same natural person shareholder are not members of the same corporate group for the purpose of the concession.
A corporate reconstruction is the transfer of assets, under an eligible transaction, between members of the same corporate group. A corporate reconstruction usually occurs to achieve a more efficient corporate structure.
Eligible transactions
An eligible transaction means any of the following transactions provided they are between members of the same corporate group:
- A transfer of dutiable property.
- A vesting of dutiable property by, or as a result of, a court order.
- The granting of a lease defined by s7(1)(b)(v) of the Duties Act 2000 (the Act).
- A transfer or assignment of a lease defined by s7(1)(b)(v) of the Act.
- A dutiable transaction to which s14 of the Act applies.
- Any other transaction resulting in a change in beneficial ownership of dutiable property, other than an excluded transaction.
- A relevant acquisition in a landholder to which s83 of the Act applies.
- A declaration of trust relating to dutiable property.
- An application to register, or transfer the registration of a motor vehicle as a result of a transfer of the vehicle.
Concessional duty
Where there is an eligible transaction the duty on the transaction is 10% of the duty otherwise chargeable (i.e. a 90% discount).
Example 1 – Duty on a single eligible corporate reconstruction transaction
On 1 October 2019, an eligible transaction transfers title to a $1,000,000 property. The corporate reconstruction concession is calculated as follows:
Dutiable value of property = $1,000,000
Relevant general rate of duty = 5.5%
General duty rate calculation ($1,000,000 × 5.5%) = $55,000
Concession duty rate = 10% of duty otherwise payable
Corporate reconstruction concessional duty = $5,500
Once the concession is applied, there are no ongoing obligations on the members of the corporate group. For instance, unlike the former corporate reconstruction exemption, there is no post-association requirement that the members must meet.
If foreign purchaser additional duty applies
If foreign purchaser additional duty applies to an eligible transaction, the corporate reconstruction concession is applied on the duty otherwise payable, inclusive of the foreign purchaser additional duty inclusive amount.
Subsequent eligible transactions
Corporate reconstruction arrangements can involve multiple steps. This may involve moving the same property more than once (either directly or indirectly) under separate eligible transactions.
When a subsequent eligible transaction involves the same property, the duty payable on the first eligible transaction can be deducted from the duty otherwise payable, on the subsequent eligible transaction. This applies whether the same property is being transferred directly (e.g. through a transfer of dutiable property) or indirectly (a relevant acquisition), but only to the extent that the same property is involved in the subsequent transaction.
This effectively provides a ‘credit’ for the duty paid (or chargeable) on the earlier eligible transaction, to the extent the same property is involved in the subsequent eligible transaction.
For this ‘credit’ to apply, both the first eligible transaction (on which duty was paid or chargeable) and the subsequent eligible transaction must be:
- between members of the same corporate group
- within 30 days of each other.
Depending on the nature of the 2 eligible transactions, this can result in no further duty being charged on the subsequent eligible transaction. This is the case if there is no difference in the duty payable under the first and subsequent eligible transactions.
The ‘credit’ is available to multiple subsequent eligible transactions, as long as these transactions meet the corporate group and timing requirements.
Example 2 – Duty on a multi-step corporate reconstruction of the Umbrella Group
The Umbrella Group consists of 3 companies, Alpha, Beta and Gamma.
Alpha owns Blackacre, a property located in Melbourne and valued at $2.5 million. Beta owns Whiteacre, a property also located in Melbourne and valued at $4 million.
Beta and Gamma are wholly owned subsidiaries of Alpha. As their sole shareholder, Alpha holds 100% of the beneficial ownership in Beta and Gamma and controls 100% of the votes that may be cast at a general meeting of Beta and Gamma. Accordingly, Alpha, Beta and Gamma are considered a ‘corporate group’ for the purpose of the corporate reconstruction concession. Therefore, an eligible transaction between Alpha, Beta and Gamma is eligible for the corporate reconstruction concession.
The Umbrella Group undertakes a corporate reconstruction involving multiple steps.
Step 1: Transfer of Blackacre to Beta
Alpha transfers Blackacre to Beta. As a result, Beta now holds Blackacre and Whiteacre (which it already held). This increases the value of Beta’s land holdings to $6.5 million.
Step 2: Gamma acquires Beta
All the shares in Beta are transferred to Gamma, within 30 days of the transfer of Blackacre under Step 1. The share transfer constitutes a relevant acquisition to which landholder duty applies.
Assessment of duty
First eligible transaction – Transfer of Blackacre to Beta
The transfer of Blackacre attracts duty at 10% of the duty otherwise payable.
This is calculated as follows:
Dutiable value of Blackacre = $2,500,000
Relevant general rate of duty = 5.5% up to $2,000,000 and 6.5% for the amount exceeding $2,000,000.
General duty rate calculation ($2,000,000 × 5.5%) = $110,000 plus ($500,000 × 6.5%) = $32,500. Total duty payable $142,500 ($110,000 + $32,500)
Concession duty rate = 10% of duty otherwise payable
Concessionary duty calculation (10% × $142,500) = $14,250
Duty on first eligible transaction = $14,250
Second eligible transaction – Gamma’s relevant acquisition in Beta
Gamma’s relevant acquisition in Beta attracts duty at 10% of the duty otherwise payable.
However, as this transaction involves the indirect acquisition of Blackacre by Gamma, duty under the first eligible transaction (direct acquisition of Blackacre by Beta) is subtracted from the duty otherwise payable under this subsequent eligible transaction.
Therefore, the duty payable on this subsequent eligible transaction is calculated as follows:
Concessional duty on relevant acquisition in Beta
Value of Beta’s Victorian landholdings ($2,500,000 + $4,000,000) = $6,500,000
Interest acquired by Gamma under the relevant acquisition = 100%
Dutiable value of relevant acquisition (100% × $6,500,000) = $6,500,000
Relevant general rate of duty = 5.5% up to $2,000,000 and 6.5% for the amount exceeding $2,000,000
General duty rate calculation ($6,500,000 × 5.5%) = $357,500 ($2,000,000 × 5.5%) = $110,000 plus ($4,500,000 × 6.5%) = $292,500. Total duty payable $402,500 ($110,000 + $292,500)
Concession duty rate = 10% of duty otherwise payable
Concessionary duty calculation (10% × $402,500) = $40,250
Concessional duty on second eligible transaction
Duty chargeable on first eligible transaction = $14,250
Duty chargeable on second eligible transaction = Duty on relevant acquisition in Beta − Duty on first eligible transaction
Duty = $40,250 − $14,250
Duty on the second eligible transaction = $26,000
Apply for a concession
How you apply for the concession depends on the type of dutiable transaction.
Transactions involving dutiable property
Your application for the concession must be lodged (along with all supporting documentation) at the same time that the relevant transfer documents are lodged for assessment via Duties Online.
Relevant acquisitions
If the corporate reconstruction results in a relevant acquisition in a landholder, you must complete and lodge a section 83 landholder acquisition statement online.
Transfer of motor vehicles
If the corporate reconstruction results in a transfer of motor vehicles, you apply for this concession by writing to us either before or after you lodge your application to transfer the vehicle’s registration with VicRoads. You do not need to complete any particular form.
If you apply for the corporate reconstruction concession after transferring the vehicle’s registration and paying motor vehicle duty, we reassess the motor vehicle duty on the transfer, and refund duty paid.
Documents required
In order to receive the corporate reconstruction concession, regardless of the transaction type, your application must include:
- A diagram of the structure of the corporate group before and after the eligible transaction, showing the ownership structure and percentage holding of entities within the group.
- ASIC extracts, or the foreign equivalent if the corporation is registered overseas, for all companies in the corporate group.
- Constitutions for all companies in the corporate group.
- Trust deeds, with all amendments, and the unit register for all unit trust schemes in the corporate group.
- A copy of the most recent financial statements for the company transferring the property (i.e. the transferor).
- An estimate of the duty payable if the corporate reconstruction concession applies.
Transactions involving dutiable property, you must also provide:
- All contracts, transfers, court orders, declarations of trust, etc. relevant to the eligible transaction.
- Evidence of the value of the property (this usually requires a valuation from a certified practising valuer who is a member of the API or by a member of the REIV with sworn valuer accreditation).
Relevant acquisitions, you must also provide:
- All documents set out in the Document Checklist in Duties Form 58 – Section 83 Acquisition statement.
Transfers of motor vehicles, you must also provide:
- The make and model, registration number.
- Current market value for each vehicle.
You should lodge your application as part of lodging the relevant transfer document for assessment via Duties Online.
Reassessment
If you didn’t claim the concession as part of your initial lodgement, you may apply for the concession as part of a refund request or an objection to the assessment.
If the concession has been wrongly claimed (i.e. the transaction was not an eligible transaction), the Commissioner may reassess the matter with any applicable penalties and interest pursuant to the Taxation Administration Act 1997.
