Court decision on landholder duty could have wide implications for unlisted property funds

A key decision in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175 (8 August 2024) by the Victorian Court of Appeal could have far-reaching consequences for the levying of landholder duty on unlisted property funds.

The Victorian Court of Appeal unanimously upheld the Commissioner of State Revenue’s decision to impose landholder duty on a capital raise for the development of a property. The capital raising involved the acquisition of an interest in a landholder company by 18 investors, with the investors unknown to each other, and investing for their own individual purposes.

Yet the State Revenue Office successfully argued that the subscription for shares in the company by the 18 separate investors should be aggregated, on the basis that the interests were acquired in an ‘associated transaction’.

By aggregating the separate investor subscriptions into one arrangement, the raising then passed the relevant landholder duty threshold: this threshold is 20% for Victorian private unit trusts and generally 50% for other landholders.

The result is landholder duty must be paid on the capital raising, in addition to the ordinary stamp duty which applies on land purchases.

Hence this decision opens the doors for double duty for funds which seek to raise additional funds relating to land holdings.

What does it mean for unlisted property funds?

Potential for double duty on landholdings: It’s now possible that almost any capital raising equating (in aggregate) to an interest equal to or greater than the relevant landholder duty threshold will result in landholder duty payable. This duty is in addition to ordinary stamp duty that applies on land purchases.

Potential for historical application: Aside from application for current capital raisings related to land or land investment projects, there is potential for a historical application to be applied – the Oliver Hume matter relates to an issue of shares which occurred a decade ago.

Doubt cast on previous administrative concessions: Some commonly applied administrative concessions, regarding genuine public offers under product disclosure statements or prospectus lodged with ASIC, are now in doubt.

Could be followed by other states: The decision may influence other revenue offices to adopt a similar stamp duty aggregation approach and, depending on where a dispute is heard, the Court of Appeal decision may be regarded as a persuasive if not binding authority.

Unknown questions around recovering duty from investors: If a landholder duty liability occurs during a capital raising then the company and its investors may be jointly and severally liable to pay such duty. It will likely be up to the landholder to recoup these duty costs from investors, yet there remain several key questions regarding when and how duty is to be calculated and collected, and whether any indemnities for stamp duty will be required.

What’s next?

If this decision is to be challenged further it will need to be taken to the High Court of Australia.

The PFA recommends that property fund managers talk to their tax and duty advisors to discuss the implications of this case on their business.

If you have any questions for the PFA Issues and Regulatory Committee, please contact pfa@propertyfunds.org.au