| Ruling no. | DA-067 |
|---|---|
| Status | Draft |
| Issue date | TBC |
| Date of effect | Proposed date of effect - 1 July 2025 |
Preamble
1. The economic entitlement provisions in Part 4B of Chapter 2 of the Duties Act 2000 (the Act) apply if a person acquires an economic entitlement in relation to relevant land, other than by a transaction that is already a dutiable transaction under Chapter 2 of the Act (such as a transfer of freehold land).
2. Section 32XC of the Act provides that a person acquires an economic entitlement if an arrangement is made on or after 19 June 2019 in relation to relevant land with an unencumbered value of more than $1 million, under which the person is or will be entitled, whether directly or through another person, to any one or more of the following:
- to participate in the income, rents or profits derived from the land.
- to participate in the capital growth of the land.
- to participate in the proceeds of sale of the land.
- to receive any amount determined by reference to any of the above matters.
- to acquire any entitlement described above.
3. The purpose of this ruling is to provide guidance on several key concepts for the purposes of Part 4B of Chapter 2 of the Act including transitional rules. The ruling also deals with acquisitions of shares in companies and units in unit trust schemes that may be outside the scope of the landholder provisions in Part 2 of Chapter 3 of the Act. This ruling is provided as a guide only and is not exhaustive. If your circumstances are not covered in this ruling, please apply for a private ruling in accordance with Revenue Ruling GEN-009v3 – General Information on Private Rulings.
4. This ruling should be read together with Revenue Ruling DA-065 (when a service fee may amount to an economic entitlement) and Revenue Ruling DA-066 (how to calculate the percentage of beneficial ownership of land taken to be acquired under an economic entitlement).
Ruling
Meaning of arrangement
5. The economic entitlement provisions apply to arrangements made in relation to relevant land. The word ‘arrangement’ is not defined in the Act but has been interpreted in various ways in different statutory contexts. In the stamp duty context, the term ’arrangement’ has generally been interpreted as having a broad meaning and as including a series of transactions: see Chief Commissioner of State Revenue v Pacific General Securities Ltd & Finmore Holdings Pty Ltd (2004) 58 ATR 17; cf. Newton v Federal Commissioner of Taxation (1958) 98 CLR 1; Australand Investments Ltd v Commissioner of State Revenue [2009] VSC 453. The term is also not limited to describing dealings between 2 or more persons (i.e. bilateral or multilateral arrangements).
6. While the term can have broad meaning and in certain contexts, it does not require a binding agreement, the Commissioner will not consider an arrangement to have been made for the purposes of Part 4B of Chapter 2 unless there is at least one binding agreement entered into under which a person obtains an economic entitlement. To this end, the Commissioner considers that the word ‘arrangement’ has been used in Part 4B because these matters often involve a wider course of action than a single agreement. It is not used to capture matters that are merely a proposed course of action.
Arrangements entered before 19 June 2019
7. In contrast, where an ‘arrangement’ in the broader sense of the word has been entered into before 19 June 2019 concerning economic entitlements, the provisions will not apply. This means a concerted action or plan by the relevant parties to undertake specific actions under which an economic entitlement is to be acquired. While an executed binding agreement is not required to show that there is a concerted action or plan between the parties, the intended actions must be captured in writing to qualify as an arrangement. The written evidence needs to be sufficiently certain and must envisage how the parties intend to agree to share in the economic benefits of the land.
8. An example of a non-binding document that would qualify as an arrangement in this context is a Heads of Agreement between a landowner and developer setting out with sufficient certainty a proposed development of the land and how the parties intend to contract to share in the benefits of the development (e.g. by executing a draft Development Agreement annexed to the Heads of Agreement). Accordingly, where such an agreement is entered into before 19 June 2019, the economic entitlement provisions will not apply.
Relevant land subject to the arrangement
9. Under section 32XB, the phrase 'relevant land' means dutiable property referred to in section 10(1)(a), (ab), (ac) or (ad) of the Act. Relevant land in this context is not confined to the individual land holdings but rather, includes all relevant land subject to the arrangement. The unencumbered value of the relevant land for the purposes of the economic entitlement provisions is the aggregate value of all of the parcels of relevant land subject to the arrangement. This means that the land value threshold in section 32XC(1)(a) would be met if the combined value of the relevant lands exceeds $1 million even though the value of the individual parcels may be less than the threshold. For an example of this, see Example 6 in Revenue Ruling DA-066.
Ownership of the relevant land
10. A person will generally acquire an economic entitlement under an arrangement involving a party that has an interest in the relevant land. However, it is not uncommon for an arrangement to be made in anticipation of a party (a purchaser) acquiring an interest in land. This type of arrangement can provide that a person will be entitled to an economic benefit of the land if, and when, the purchaser acquires its interest in the land. In recognition that the purchaser may not ultimately acquire an interest in the land, the Commissioner considers that the economic entitlement will not be acquired until the purchaser has acquired its interest in the land. The Commissioner also considers that an arrangement will not be made if no party to the arrangement has an interest in the relevant land and there is no anticipation of any party acquiring or holding an interest in the land.
Example 1: Entitlement conditional on acquiring relevant land
Companies A and B enter into a contract of sale under which Company A agrees to sell land valued at $5 million to Company B. Company B and Company C subsequently enter into a loan agreement under which Company C will provide a loan to Company B in exchange for a reoccurring amount determined by reference to 50% of the rents of the land. The loan agreement is conditional on Company B acquiring the land. If Company B takes transfer of the land, the Commissioner considers that Company C will have acquired an economic entitlement and is required to lodge its arrangement with the Commissioner. In this case, duty would be chargeable on the transfer of the land from Company A to B and the separate and distinct arrangement between Companies B and C under which Company C acquires future economic benefits (an amount determined by reference to the rent) in relation to the land from Company B.
Meaning of 'is or will be entitled to'
12. The phrase 'is or will be entitled to' in section 32XC(1)(b) incorporates an element of futurity about when a person will be entitled to participate or receive an amount under an arrangement. This means that it includes both a present entitlement as well as an entitlement that will arise in the future. The phrase 'entitled to' means to be given the right to have or do something. It includes both direct and indirect involvement in an arrangement and should therefore not be construed narrowly. In the context of section 32XC(1)(b), the entitlement includes the right to receive an amount determined by reference to participation as described in subparagraphs (i), (ii) or (iii) meaning the provision is intended to include both active and passive involvement in an arrangement.
13. However, even if a person will be entitled to receive an amount, an economic entitlement will only be acquired when the person who grants the entitlement has the right to it themselves as explained above in relation to ownership of the relevant land.
Meaning of 'to participate in'
14. Section 32XC(1)(b) provides that a person will acquire an economic entitlement if under an arrangement, they will be entitled to participate in identified income, rents, profits, capital growth or proceeds of sale of the relevant land. The phrase 'to participate in' means to take a part or share in and is not intended to be construed narrowly. For example, even where a person is entitled to receive part of the income, rents, profits, capital growth or proceeds of sale of the relevant land, they will still acquire an economic entitlement under the arrangement.
Meaning of 'directly or through another person'
15. The phrase 'directly or through another person' in section 32XC(1)(b) is intended to ‘look through’ participation by a trustee or nominee acting for or on behalf of another person or beneficiary. It also captures arrangements where a person who holds an economic entitlement sells or transfers that entitlement to another third party. In this situation, the third party acquires the entitlement ‘through another person’. In addition, a person can also acquire an economic entitlement 'through another person' where the amount payable to them is determined by reference to the amount payable to another party to the arrangement.
16. Other circumstances where an entitlement might be acquired 'through another person' include the acquisition of shares in a company which holds the rights or interest or by acquisition of an interest in a trust of which the trustee holds the rights or interest on behalf of the person.
Acquisitions of shares in companies and units in unit trust schemes
17. The economic entitlement provisions contained in Chapter 2 can also apply to acquisitions of shares in companies and units in unit trust schemes that may be outside the scope of the landholder provisions in Chapter 3 of the Act. As a result, a liability may arise under Chapter 2 where no liability would arise under Chapter 3 because the interest acquired is below the relevant acquisition threshold. However, this would only occur where the acquisition of units, shares or other security interests entitle the holder to participate in the income, rents or profits, capital growth or proceeds of sale from particular land held by the entity. Where the entitlement to income, rents, profits, capital growth or proceeds of sale is general in nature and not specific to particular land held by the entity, the economic entitlement provisions in relation to land would not apply. This means a single purpose vehicle is not necessarily captured. It will depend upon how the entitlements of security holders are structured and whether they are expressed in relation to a specific property or property in general.
Example 2: Acquisition of units in a unit trust scheme
ABC is the owner of two shopping centres in Victoria that it holds on behalf of the ABC Unit Trust, the sole unit holder of which is XYZ. One centre is in regional Victoria and valued at $15 million while the other is in metropolitan Melbourne and valued at $85 million. To fund an expansion of its metropolitan shopping centre, ABC and XYZ (who holds 85 million ordinary units in the trust) have decided to sell the regional centre.
A potential investor, with no experience in managing shopping centres, proposes an alternative arrangement for the acquisition of the regional shopping centre other than via a conventional sale and purchase transaction. To maintain ABC as the manager of the shopping centre, the proposal involves the creation and issue of 15 million new Class A units in the ABC Unit Trust to the investor for $15 million. The Class A units will entitle the investor to 100% of the net income, rents and profits from the regional shopping centre. On a winding up of the trust, the Class A units would also provide the investor with an entitlement to participate in a distribution of the ABC Unit Trust’s property to the extent that the value of the regional shopping centre bears to the total value of both shopping centres (15% as at the time of the proposal).
The parties agree to the proposal and the new Class A units are created and issued to the investor for a subscription price of $15 million. While the acquisition is not chargeable with duty under Chapter 3, the acquisition is dutiable as the acquisition of an economic entitlement under Chapter 2. This is because it involves an arrangement under which the investor has an entitlement to participate in 100% of the net income, rents or profits derived from specific land.
Commissioner of State Revenue
Rulings do not have the force of law. Each decision made by the State Revenue Office is made on the merits of each individual case having regard to any relevant ruling. All rulings must be read subject to Revenue Ruling GEN-001.
This is a draft ruling only, and is not available for publication, nor may it be relied upon by taxation officers, taxpayers or practitioners.
