SA's new landholder duty: the devil in the detail

The details of South Australia's proposed landholder duty regime have now been released with the Statutes Amendment (Land Holding Entities and Tax Avoidance Schemes) Bill 2011 (Bill) introduced to the House of Assembly on 4 May 2011.

Although, in broad terms, the Bill will bring South Australia in line with other States and Territories, on a closer reading, there are a number of key differences. The Bill also contains material changes to the model announced by the Government in the State Budget last year and will have significant implications for businesses owning land or infrastructure assets located in South Australia and investors looking to acquire those businesses.

As part of the 2010-2011 State Budget, the South Australian Government announced its intention to replace the existing land-rich duty provisions in the Stamp Duties Act 1923 (SA) with a landholder duty model, effective from 1 July 2011. This policy change is consistent with a recent shift towards imposing landholder duty in most States and Territories of Australia.¹

General anti-avoidance provisions introduced

The details of South Australia's proposed legislation have now been released with the Statutes Amendment (Land Holding Entities and Tax Avoidance Schemes) Bill 2011 (Bill) introduced to the House of Assembly on 4 May 2011.

Although, in broad terms, the Bill will bring South Australia in line with other States and Territories, on a closer reading, there are a number of key differences. The Bill also contains material changes to the model announced by the Government in the State Budget last year and will have significant implications for businesses owning land or infrastructure assets located in South Australia and investors looking to acquire those businesses.

Existing land-rich duty provisions

The current land-rich duty provisions apply to the acquisition of an interest of more than 50%² in unlisted companies and unit trusts which are said to be "land rich". An entity is land rich if:

(a) it holds (directly or indirectly) more than $1m of land³ in South Australia; and
(b) the value of all its land holdings (located in any jurisdiction) comprises 60% or more of its total assets.

Transactions caught by the existing land-rich provisions are dutiable at rates of up to 5.5% of the value of the underlying South Australian land (i.e. at the same rate applicable to that land if it had been transferred outside of a company or unit trust structure).

Key features of the proposed landholder duty

The Bill will remove the current 60% threshold test,⁴ meaning that an acquisition may be dutiable where the entity owns land in South Australia worth $1m or more, irrespective of whether the landholding forms a significant part of its assets.

This $1m land value threshold is substantially lower than the $2m threshold adopted in NSW, Queensland and WA.

In addition, the new landholder duty regime will:

(a) treat anything fixed to the land as an interest in land, regardless of whether it is a fixture at law or considered legally separate under the provisions of another Act;⁵
(b) impose duty on the value of South Australian land and goods;⁶
(c) apply to listed as well as non-listed entities;⁷
(d) treat partners as being beneficially entitled to a proportionate share in each and every asset of a partnership; and
(e) introduce a new general anti-avoidance regime.

Interest in land to include anything fixed to the land

The Bill treats anything fixed to land as an interest in land for the purpose of calculating duty. This applies regardless of whether the item is separately owned, notionally severed or considered legally separate to the land by operation of another Act or law.⁸ This approach to fixtures is novel and not reflected in the duty Acts of any other State or Territory.

As a result of this provision, the dutiable value of the land will include assets fixed to the land, even if they are not considered fixtures at common law or as a result of specific legislation. This is likely to have major implications for infrastructure assets which may be fixed to land but currently not considered to be fixtures. For example, assets such as electricity distribution and transmission lines and gas pipelines, which are currently treated as non-fixtures by virtue of statute,⁹ will in future be treated as interests in land and be subject to landholder duty.

Landholder duty calculated on value of land and goods

The 2010-2011 State Budget announcement stated that, consistent with the current regime, duty would only be payable on the value of the South Australian land being transferred.¹⁰ However, the Bill provides that duty is payable on both the value of the South Australian land and the entity's South Australian goods.¹¹

South Australian goods include goods used wholly or predominantly in South Australia, with carve outs for stock in trade, materials under manufacture or held for use in manufacture, materials held or used in the business of primary production, livestock, registered motor vehicles or trailers, ships or vessels. This means that, for most transactions, duty will also be payable on the value of all goods, other than inventory.

Listed entities

Landholder duty will also apply to acquisitions of publicly listed companies and public unit trust schemes (Listed Entities) which are not captured by the existing land-rich provisions.

However, Listed Entities will only be subject to landholder duty where 90% or more of the shares or units in that Listed Entity are acquired (as opposed to 50% or more for private entities). As is the case under the New South Wales landholder model, such acquisitions are subject to a generous concessional rate, being 10% of the duty otherwise payable (i.e. 0.55%).

Partnerships

Under the Bill, partners will be regarded as beneficially entitled to a proportionate share in each and every asset of the partnership.¹² This overrides the general law position that a partner does not have a fractional interest in each partnership asset but only a right to a proportion of the surplus after realisation of assets and the payment of debts and liabilities upon its dissolution (unless otherwise stipulated in the partnership agreement).

As a result, the transfer of an interest in a partnership (including the addition or retirement of a partner in a partnership)¹³ will be a transfer of the beneficial interest in a proportion of the underlying assets. If these underlying assets include shares or units in a land-rich entity the transaction may therefore be subject to landholder duty.

In addition, where the partners comprise companies or trusts, each company or trust will be taken to own a proportion of each asset of the partnership and may therefore be a land holding entity for the purpose of the Bill. Consequently, transfers of shares or units in those partners may also attract landholder duty.

Introduction of new anti-avoidance provisions

A new general anti-avoidance regime modelled on Part IVA of the Income Tax Assessment Act 1936 (Cth) will be introduced by way of an amendment to the Taxation Administration Act 1996 (SA). Under the anti-avoidance provisions a person is liable to pay the amount of tax avoided as a result of a tax avoidance scheme which is "artificial, blatant or contrived"¹⁴ where the sole or dominant purpose of the scheme is to reduce or avoid tax. Like Part IVA, the new provisions define a 'scheme' very widely to include, amongst other things, a unilateral scheme or part of a scheme.

Implications

The changes outlined in the Bill will have significant implications for all entities owning land in South Australia and any entities looking to invest in, or acquire, those entities.

In particular:

• Removal of the 60% threshold test will result in a substantial broadening of the tax base. Landholder duty will apply to a multitude of transactions that would not be caught under the existing land rich provisions (e.g. acquisition of an entity with minimal South Australian land holdings that are incidental to its business operations).
• Duty revenues will be substantially increased by the proposed inclusion of the value of South Australian goods and any items fixed to the land (regardless of their legal nature).
• Owners of infrastructure assets will be particularly affected as certain assets fixed to the land, such as electricity and gas infrastructure, will now be treated as interests in land.
• Landholder duty will be relevant to takeovers of listed entities with landholdings in South Australia.

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¹ Landholder duty models have been adopted in Western Australia, New South Wales, the Northern Territory, the ACT, Queensland (from 1 July 2011) and, most recently, Victoria (from 1 July 2012 with proposed changes announced in the 2011-2012 Victorian State Budget of 3 May 2011).
² Including any increase in an interest of more than 50%.
³ Based on the unencumbered value of its land holdings.
⁴ Bill, section 98.
⁵ Bill, section 92.
⁶ Bill, section 102A.
⁷ Bill, section 102A.
⁸ Bill, section 92(3).
⁹ E.g. Petroleum and Geothermal Energy Act 2000 (SA).
¹⁰ RevenueSA, Information Circular No. 18 (State Budget 2010-2011), issued 16 September 2010.
¹¹ This is similar to the position in NSW and WA, where landholder duty is calculated on the value of both land and chattels.
¹² Bill, section 91(4).
¹³ Bill, section 100(4)(d).
¹⁴ This is similar to the anti-avoidance rule introduced in NSW on 1 July 2009.

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