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) [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.
From 14 June 2018, 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 a change in beneficial ownership transaction that is liable for 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 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%, Mr White as to 30% and Black Pty Ltd as to 50%. 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.
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 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% and Companies B and C as to 25% each.
Due to Company C failing to make a milestone payment towards the development of the land, Companies A and B have exercised their preemptive 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% 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 equally 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 will deal 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 wishes to leave the partnership and offers to sell its 25% interest to a new partner, Z Pty Ltd. Consequently, an agreement to sell the partnership interest is entered into between D Pty Ltd and Z Pty Ltd.
From 14 June 2018, for the purposes of the Act, Z Pty Ltd is taken to acquire 25% beneficial ownership of the land of the Land Partnership from D Pty Ltd under the transaction. Therefore, there will be dutiable transaction consisting of 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 obtained the beneficial ownership or whose beneficial ownership increased, is taken to have completed 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 should be lodged via Duties Online for SRO determination (Electronic Lodgement). If the change in beneficial ownership transaction is not affected by a written instrument, the transferee should contact the State Revenue Office 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 transaction, and
- unencumbered value of the dutiable property.
Please refer to our summary of current duty rates for further guidance.
