The Victorian Duties Act 2000 contains provisions that can apply to Land Development Agreements that have been broadened since the recent enactment of the State Taxation Acts Amendments Act 2019 on 18 June 2019.

 

The former ‘economic entitlement’ provisions applied to the acquisition of a greater than 50% interest in a private landholder with landholdings of more than $1m, or, entering into an arrangement with a private landholder that provided for an entitlement to dividends, income, capital growth or proceeds from the sale of land held by a private landholder (each an economic entitlement), not otherwise subject to duty. land development agreements

Land development agreements would be caught by these provisions where, for example, a developer obtained from a landholder a 50% or greater share in the profits of a land development project. To circumvent duty, land development agreements could be structured so that the developer had, for example, a less than 50% interest in the development profits, or, no development rights over a small area of the landholder’s landholding.

Where the duty provisions apply, the holder of the economic entitlement is deemed to beneficially hold an interest in the land and is subject to duty at the duty rate (5.5% is the highest rate) applied to the value of that land multiplied by their economic entitlement percentage.

Example 1

John owns land with an unencumbered value of $10m. John grants sub-division development rights to Geoff with Geoff entitled to 40% of the proceeds from the sale of the subdivided lots. Geoff pays no duty on its development rights because its ‘economic entitlement’ is less than 50%.

The former ‘economic entitlement’ provisions have been repealed and replaced by broader provisions that apply to relevant land with an unencumbered value of more than $1m, irrespective of the economic entitlement interest obtained.

Furthermore, a 100% beneficial interest in the land is deemed if the arrangement:

  • Does not specify the percentage of the economic entitlement that a person is entitled to receive compared to the total economic entitlements of the arrangement;
  • Includes any other entitlement of, or amount payable to, the person or their associate; or
  • Entitlement to two or more economic entitlements.

The Commissioner may reduce the economic entitlement interest below 100% on application and where he considers it appropriate.

Example 2

Assume the same facts as Example 1. Geoff would pay duty of $220,000 [ $10m x 40% x 5.5%] on its development rights with John if entered into after 18 June 2019. 

 

For more information

If you would like to know more about Land Development Agreements or the above, contact your local industry expert today.