New Duties Landscape on the Horizon

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The most significant changes to the Duties Legislation

First up are the proposed changes on how a farm-in will be treated under the WA Duties Act 2008, this has significant issues on how the funds spent and allocated should be considered in order to avail a transaction to the concessions available under the Act. The proposed legislation will be backdated to 28 November 2018. The drafting of a farm-in should carefully consider the requirements of the proposed amendments.

Second, a significant volume of changes designed to “stop duty leakage” has been presented to parliament under the Revenue Laws Amendment Bill 2018 – Effectively, how you though the Act operated before in relation to landholder duty and corporate reconstruction exemptions will no longer be correct. Other significant and wide changes will be made.

For example, no longer will it be a matter of seeing if you’re ‘land rich’ because the acquired entity owns land of $2m or more and you ( and aggregated parties) hold 50% or more. You will have to work through all entities to see if an aggregation of any interest directly or indirectly is going to add up to 50% or more.

A further matter to be very aware of is if you acquire an entity that has land valued at less than $2m and you think duty doesn’t apply, you may need to think again. If you buy another entity, that is unrelated and random from the first entity acquisition, within 12 months of each other and that entity also has land (of any value), you are deemed to have acquired two entities under one arrangement and therefore have a landholder obligation if both entities combined land value is $2m or more (there is an out if not one arrangement – but the Commissioner has to decide that, meaning a lodgement).

Further amendments to consider is the cost/benefit of a Corporate Reconstruction. Under the proposed amendments there will be the burden of a 3 year post association which will claw back the duty if the association is broken (50%). My takeaway on this point is if you are planning on transferring assets intra group – now is the time to do it before the new legislation becomes law.

Third – The Commissioner had a win under COMMISSIONER OF STATE REVENUE v PLACER DOME INC (NOW AN AMALGAMATED ENTITY NAMED BARRICK GOLD CORPORATION) [2018] HCA 59, this case needs to be considered in the light of any landholder duty acquisitions. Despite the issues raised in this case, in our view it can be distinguished from the valuation exercise under the Duties Act, but notwithstanding our views, a cautious approach will be needed when considering what is the value of land in a land rich company.

So where does that leave us? My takeaway is that the High Court was careful to emphasise that it is a statutory valuation exercise – in the context of the legislation. The Stamp Act 1921 land rich provisions are noticeably different from the Duties Act 2008 provisions. The former, as stated in the High Court was a statutory valuation exercise of a going concern value for land as a ratio of a going concern value of the enterprise. No such statutory requirement exits under the Duties Act – it is simply “the unencumbered value of land, chattels or land and chattels”. No requirement to ascertain an entities value, going concern or otherwise.

If the Commissioner takes away from this case that it supports its current observed practice, that a top down is appropriate, then I question is there a need for a valuation of “land” as requested by the Commissioner. After all, the High Court case tends to suggest you simply do a mathematical evaluation, get the purchase price (no matter what is paid) then simply deduct a few balance sheet items or known intangibles and then assess the balance (yes- an over simplistic view, but possibly the resultant outcome). A request for a valuation seems redundant if this is the approach the Commissioner is to take and suggest that the High Court case is the authority to do this. My view, I think there is enough difference in the legislation and the comments in the case to differentiate a valuation required under the Duties Act. It may assist if the Commissioner issued a Practice Direction of her approach as a result of this case.

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