Voluntary disclosures following Oliver Hume decision

Published on 08 October 2024

On 8 August 2024, the Court of Appeal handed down its decision in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175. The Court unanimously upheld the decision of the Victorian Civil and Administrative Tribunal (VCAT), finding that the acquisitions made in the applicant landholder pursuant to a conditional capital raising were subject to duty as an associated transaction notwithstanding that the acquirers were not acquainted with each other.

View the decisions by the Court of Appeal and VCAT.

Summary of facts and Court of Appeal decision

The applicant landholder was a special purpose vehicle established for the purpose of a property development project at Diamond Creek. In 2014, the applicant circulated an Information Memorandum which sought to raise $1.8 million through an issue of 1.8 million shares to fund the development. It was a condition of the Information Memorandum that the target of 1.8 million shares be achieved by 26 June 2014. On 2 July 2014, the applicant issued 1.8 million shares to 18 investors.

The Commissioner assessed the applicant for duty on the basis that the investors acquired their interests in the applicant landholder via an ‘associated transaction’, and therefore the acquisitions constituted a relevant acquisition for the purposes of s 78(1)(a)(ii)(C) of the Duties Act 2000 (Act). Relevantly, acquisitions are an ‘associated transaction’ if they form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions (see paragraph (b) of the definition of an ‘associated transaction’ in section 3(1) of the Act).

The applicant sought leave to appeal against the Tribunal’s decision which upheld the duty assessment. This was principally on the basis that the Tribunal erred in its construction of section 78(1) of the Act because it should have found that the investors’ acquisitions were not an ‘associated transaction’ given the investors were not acquainted with each other.

As a matter of statutory construction, the Court of Appeal held that the focus of the language in paragraph (b) of the definition of an ‘associated transaction’ is not on the individuals concerned, but on the relationship between the acquisitions and the singular ‘arrangement’ or ‘transaction’ (or ‘series of transactions’). Further, paragraph (b) focuses on the objective terms and circumstances surrounding the acquisitions. It was relevant to consider whether there was some connection or interdependence between the circumstances by which the investors acquired their interests, such that the acquisitions might be characterised as, essentially, ‘one’ arrangement.

The Court of Appeal considered that the objective interconnecting factors relied on by the Commissioner, when considered together, supported a finding that the acquisitions formed, evidenced, gave effect to, or arose from, substantially ‘one arrangement’, or alternatively ‘one series’ of transactions. Those factors were:

1. The acquisitions were interconnected in circumstances where no individual acquisition could go ahead at all unless a total of $1.8 million was raised. The transactions could not be described as independent of each other.
2. The content of the statutory contract (the constitution) was highly relevant as it provided that the acquirers, together, had an interest in an entity which was to undertake a single land development project, via an entrenched management structure through an entity which was to be wound up at the end of the project.
3. The effect of the acquisitions of the shares on the same day, and in the same way, was to substantively alter the shareholding in the landholder from being an Oliver Hume entity to an entity owned by a group of private investors (as to 99.99%).

The Court noted that these factors arose regardless of whether the acquirers were personally acquainted with one another or whether they regarded themselves as independent subscribers.

Issues arising from the Court of Appeal’s decision

The Court of Appeal’s decision affirms the Commissioner’s interpretation and application of the associated transaction definition as set out in Revenue Ruling DA-057v2. The decision also confirms the Commissioner’s long-standing practice and treatment of acquisitions under conditional capital raisings in special purpose vehicles set up as syndicated property investments.

However, the decision does not mean that all capital raisings are subject to duty as associated transactions. Nor does it change the Commissioner’s approach to interests acquired by independent members of the public under a genuine public offer as explained in Revenue Ruling DA-057v2. This is because of the specific provisions that apply to arrangements involving the conversion of private landholders to public landholders.

As explained in Revenue Ruling DA-057v2, the Commissioner will not treat interests acquired under a genuine public offer as an associated transaction where the arrangement is subject to concessional duty under the conversion provisions in section 89B or 89C of the Act.

Voluntary disclosure program

The Commissioner is aware that advisers and landholders may have taken a different view regarding the application of the associated transaction provision to capital raisings as set out in Revenue Ruling DA-057v2 and confirmed by the Court of Appeal. 

Prior to commencing a compliance program on capital raisings in landholders, the Commissioner is providing landholders with a penalty tax amnesty on voluntary disclosures of liabilities arising from capital raisings. The period of the penalty tax amnesty will run until 31 March 2025. During that time, the Commissioner will remit all penalty tax and will only impose interest at the market and reduced 3% premium rates on any disclosed liabilities arising from capital raisings in landholders. After that time, the Commissioner will commence a compliance program on capital raisings in landholders and will impose relevant rates of penalty tax and interest on any identified liabilities.

Landholders are encouraged to review their historical capital raisings having regard to Revenue Ruling DA-057v2 and the Court of Appeal’s decision and to make a voluntary disclosure if it is considered that a liability for duty may have arisen.

A voluntary disclosure can be made by lodging a landholder acquisition statement or by sending a cover letter together with supporting documents to landholder@sro.vic.gov.au.

If you have any questions or queries in relation to this publication, please contact the Landholder Acquisitions Branch of the State Revenue Office, Victoria on 03 9628 0123.