|Issue date||7 December 2020|
|Date of effect||19 June 2019|
This ruling replaces DA-060 to take into account the amendment to the definition of 'land holding' from 19 June 2019 to include interests in fixtures held separately from land, and land taken to be beneficially owned due to an economic entitlement held in relation to the relevant land. The ruling also includes some guidance and examples of circumstances where the Commissioner is willing to consider the written down book value of fixtures in the absence of formal valuation evidence.
The landholder provisions in Part 2 of Chapter 3 of the Duties Act 2000 (the Act) charge duty on relevant acquisitions in landholders.
A landholder is any company or unit trust scheme (whether private or public) that has land holdings in Victoria with an unencumbered value of $1 million or more. For the purposes of the provisions, land holdings are not limited to interests in land and can include interests in fixtures held separately from land and economic entitlements in land.
In determining whether a company or unit trust scheme is a landholder (and the amount of duty payable on a relevant acquisition), the value of its land holdings must be ascertained. In certain circumstances, the company or unit trust scheme’s land holdings may include interests in land held by linked entities and discretionary trusts and land deemed to be owned as a result of uncompleted agreements.
For information on the constructive ownership of land through linked entities, please refer to Revenue Ruling DA-058. For information on the constructive ownership of land through discretionary trusts, please refer to Revenue Ruling DA-059.
The purpose of this Revenue Ruling is to identify the type of valuation evidence and the circumstances in which such evidence may be required by the Commissioner of State Revenue (the Commissioner) when determining whether a company or unit trust scheme is a landholder and the amount of duty (if any) payable on a relevant acquisition. The Ruling also sets out the circumstances that may result in a referral of a matter to the Valuer-General or another competent valuer for valuation.
Section 72(1) of the Act defines a ‘land holding’ to include an interest in land other than the estate or interest of a mortgagee, chargee, or other secured creditor, or a profit à prendre. From 19 June 2019, a land holding also includes an interest in:
- Fixtures that are held separately from the underlying land on which the fixtures are located.
- Land taken to be beneficially owned due to an economic entitlement held in relation to the relevant land.
‘Land’ is not defined in the Act. Based on section 38 of the Interpretation of Legislation Act 1984 (Vic), ‘land’ for the purpose of the Act includes land covered with water, and any estate, interest, easement, servitude, privilege or right in or over land, such as a lease. Where a company or unit trust holds land in Victoria, that land also includes anything fixed to the land, whether or not the item:
- constitutes a fixture at law, or
- is owned separately from the land, or
- is notionally severed or considered to be legally separate to the land as a result of the operation of any other Act or law.
However, the Commissioner can determine that ‘land’ does not include a thing fixed to the land if the thing is owned by someone other than the owner of the land or an associated person of the owner of the land and the thing is not used in connection with the land.
Section 89G specifies that the provisions in Chapter 2 of the Act for ascertaining the value of transfers chargeable with ad valorem duty apply in the same way to the value of land holdings for landholder purposes. Accordingly, section 22 of the Act (contained in Chapter 2), which defines ‘unencumbered value’, is relevant when determining the unencumbered value of a landholder’s land holdings.
The statement of financial position (balance sheet) of a company or unit trust generally records the value of assets, including land holdings, on a historical cost basis. The Commissioner’s view is that historical cost is not necessarily reflective of unencumbered value. The Commissioner considers that the most accurate method of determining the unencumbered value of a company or unit trust scheme’s land holdings is by way of valuation. Therefore, the Commissioner may require a person who is liable to duty to provide a valuation by a competent valuer under section 273 of the Act. The Commissioner considers a competent valuer for these purposes to be either a certified practising valuer who is a member of the Australian Property Institute or a member of the Real Estate Institute of Victoria Ltd with sworn valuer accreditation.
The Commissioner will generally require a taxpayer to obtain and provide a valuation from a competent valuer on any one or more of the company or unit trust scheme’s land holdings if:
- the value of the land holding, as estimated by the taxpayer, is above $1 million or is low in comparison with its municipal capital improved value (irrespective of its estimated value), or
- the land holding was acquired by the company or unit trust more than 12 months before the date of the relevant acquisition, or
- the taxpayer has submitted a valuation from a competent valuer where:
- the valuation provides a value for the land more than 12 months before the date of the relevant acquisition, or
- the valuation provides a value for the land within 12 months of the date of the relevant acquisition but the valuation has not taken into account planning approvals or permits obtained or other improvements made to the land prior to the date of the relevant acquisition.
The Commissioner may also require the taxpayer to provide a valuation from a competent valuer pursuant to section 273 of the Act in any other circumstances the Commissioner considers necessary. Such circumstances may include a valuation of a leasehold interest where a company or unit trust scheme's status as a landholder is dependent on the value of such an interest.
Where a landholder holds an interest in fixtures separately from the land on which they are located or holds land on which items have been fixed by the landholder or another person, the Commissioner is willing to consider whether the written down book value of those fixtures provides a reasonable estimate of value in the absence of formal valuation evidence. Generally, the Commissioner will accept such evidence of value as being reasonable if the fixtures have not been written down to a zero value and are general in nature (such as air conditioning units in an office, gantry cranes and fittings in an engineering workshop or display cabinetry and shelving in a retail store) and not specialised items of plant and equipment that form part of an operating asset on the land.
Where the relevant fixtures consist of specialised and integrated items of plant and equipment that form part of an operating asset on the land (such as a water treatment or gas production facility, a petrol refinery or power station), the Commissioner is likely to require a formal valuation to be provided. Example 1 and 2 below are situations where the Commissioner is unlikely to require a formal valuation of the relevant fixtures. Example 3 is a situation where the Commissioner is likely to require a formal valuation.
Person A makes a relevant acquisition of a 100% interest in a private company that owns a significant retail chain. The company’s Victorian land holdings comprise non-dutiable leasehold interests in 50 retail outlets and the store fit-outs installed in those retail outlets such as shelving, racking, counters and other minor improvements. As these items are general in nature, the Commissioner would be willing to consider whether the written down book value provides a reasonable estimate of the value of all the fixtures for duty purposes.
Person B makes a relevant acquisition of a 100% interest in a private company which owns an engineering business. The company owns a warehouse in an industrial estate in Victoria which has been improved with the installation of fabrication equipment and an in-built 5 tonne crane. Person B has a valuation of the land and warehouse excluding the plant and equipment based on comparable sales of other warehouses in the industrial estate. In these circumstances, as the plant and equipment is general in nature, the Commissioner would be willing to consider whether the value of the land and building in the valuation plus the written down book value of the plant and equipment provides a reasonable estimate of the unencumbered value of the land holdings.
Person C makes a relevant acquisition of a 100% interest in a private company which owns an operational power station in a remote area of Victoria. Person C has a valuation of the land and buildings excluding the generators and other specialised and integrated plant and equipment on the site. The valuation values the land as farming land and attributes very little value to the buildings given they are 30 years old. Person C submits that the Commissioner should accept the valuation of the land and buildings plus the written down value of the generators and other fixed plant and equipment. The fixed asset register for the company shows that a significant portion of the company’s plant and equipment has been written down to a zero value, notwithstanding that all the items are still in place, providing utility and are regularly maintained, updated and serviced to ensure the safe and efficient production of electricity. In these circumstances, the Commissioner will require a formal valuation of the land to be provided inclusive of the in situ value of all the electricity generation assets located on it.
Referral to Valuer-General or other competent valuer
The Commissioner may refer a matter for valuation to the Valuer-General or another competent valuer under section 273(2) of the Act. The circumstances in which the Commissioner will consider referring a matter for valuation include (but are not limited to) when:
- a taxpayer provides informal valuation information (e.g. a letter of appraisal from a real estate agent), or
- a taxpayer provides formal valuation information (e.g. a valuation from a competent valuer) which the Commissioner considers does not accurately reflect the unencumbered value of the company or unit trust scheme’s land holdings.
If the Commissioner obtains a valuation from the Valuer General or another competent valuer, the taxpayer may be liable to pay the cost of the valuation in the circumstances set out in section 273(3) of the Act.
If a taxpayer requires advice on the interpretation and application of Part 2 of Chapter 3 of the Act in relation to their particular circumstances, the taxpayer may contact the Landholder Acquisitions Branch at the State Revenue Office or apply for a private ruling in accordance with Revenue Ruling GEN-009v3. In all cases, the onus is on the taxpayer to provide the Commissioner with the necessary information to enable an informed decision to be made.
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.