Overview
You may not be aware that, in Queensland, you are required to pay “landholder duty” when you make a “relevant acquisition” in a “landholder” under the terms of the Duties Act 2001 (Qld) (Duties Act).
The duty arises when a significant interest in a landholding entity changes ownership, and is designed as an anti-avoidance measure to prevent a person avoiding duty by acquiring the entity that holds the land, rather than the land itself.
This is an important additional “transaction cost” that you will need to take into account in a corporate acquisition. An understanding of this area is important not only to ensure the transaction is viable, but also to avoid inadvertently accumulating an unpaid tax debt.
Because, in tax legislation, the devil is always in the detail, let’s unpack some of the key concepts, and explore how they might impact you in an acquisition involving a landholder.
The Basics
Each state and territory in Australia has its own unique landholder duty regime, and duty is payable in the jurisdiction where the relevant land is located.
“Landholder”
In Queensland, a “landholder” is a listed or unlisted company, or a listed unit trust, that has landholdings in Queensland with an unencumbered value of $2 million or more.
But the Duties Act includes very wide “linked entity” and tracing provisions, so that a person’s landholdings will include a far broader range of land interests than those which are directly held by the person.
Notably, “landholdings” is defined to include (among other things) the land owned by a subsidiary of the landholder (and any subsidiary of the subsidiary). For that purpose, the Duties Act adopts the definition of “subsidiary” in the Corporations Act 2001 (Cth) (Corporations Act).
This enables land interests to be traced down a chain of a linked group of companies.
Under the Corporations Act, Entity A is considered to be a subsidiary of Entity B if Entity B “controls” the composition of Entity A’s board of directors, or is in a position to cast or control the casting or more than 50% of the votes at a general meeting of Entity A.
Under section 50AA of the Corporations Act, “control” arises not just from direct ownership but also takes into account the “practical influence” Entity B has over Entity A (rather than just the strict legal rights it can enforce), and the previous “pattern of behaviour” impacting Entity A.
As a result, while notionally you may believe you are not liable for landholder duty because the entity you are acquiring does not itself have landholdings of $2 million or more, you should conduct careful due diligence to ascertain the extent of any land held by other entities belonging to the same corporate group as the direct target of the acquisition.
To further complicate matters, under the Duties Act, a landholder’s interests in land are deemed to include land held on trust by the landholder, where the landholder or a subsidiary of the landholder is a beneficiary of the trust. This is especially important to keep in mind as a component of the due diligence process in a corporate acquisition involving land, with a transfer of shares in the corporate trustee company also potentially triggering liability for landholder duty.
“Relevant acquisition”
Under the Duties Act, a “relevant acquisition” arises when a person acquires a “significant interest” in a landholder, whether alone or in combination with interests held by any “related persons”.
This broad definition is another way in which the Duties Act “traces” interests to maximise the circumstances in which landholder duty may become payable – this time on the “acquirer” side.
Related persons are defined to include family members (in the case of natural persons) and, again, subsidiaries (in the case of company acquirers), as well as trust arrangements.
A significant interest is an interest of 50% or more in a private landholder (i.e. an unlisted corporation) or 90% or more in a public landholder (i.e. a listed corporation or listed unit trust).
Importantly, an “interest” in a landholder can also arise from either an interest as a shareholder or as a unitholder in a listed unit trust.
Exemptions
The Duties Act contains a number of exemptions, for example where a corporate group changes its structure in a corporate reconstruction and transfers property between group companies. In that case, an application for a specific exemption is required to the Commissioner of State Revenue.
However, the exemptions are limited in scope, and it is prudent to conduct extensive investigations in a corporate acquisition context to ascertain the scope of potential landholdings throughout the group in assessing potential landholder duty liability.
Takeaways
Landholder duty is a very complex area that requires specialist advice and guidance from the experts. As a substantial transaction cost to be taken into account in your commercial decision-making process, it is worth investing in comprehensive due diligence and an understanding of the latest regulatory developments concerning the duty and the circumstances in which it may arise.
We are here to assist you through these complexities, and ensure you do not face an unwanted (and potentially unknown) tax liability years down the track.
For a further discussion, please get in touch with James Barritt or Matthew Kumnick.
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