The Supreme Court of Victoria has recently handed down the first decision interpreting the ‘economic entitlement’ provisions in the Duties Act 2000 (Vic) (Duties Act). These provisions were introduced in 2012 as part of the shift from a “land rich” to a “landholder” model for assessing duty in Victoria on the acquisition of interests in certain land owning entities.
In the case of BPG Caulfield Village Pty Ltd v Commissioner of State Revenue  VSC 112, BPG Caulfield Village Pty Ltd (BPG) entered into a property development agreement (PDA) with the Victorian Amateur Turf Club (Club) whereby BPG agreed to develop some of the land of the Club. Under the terms of the DA, BPG was entitled to participate in the proceeds of the sale of the land developed.
The value of the land the subject of the DA was approximately $32.5M (at the time the PDA was entered into). Importantly, this was approximately only 12% of the value of all land owned by the Club.
The Commissioner sought to assess BPG for duty on the basis that, by entering into the PDA, BPG acquired an economic entitlement in the Club by virtue of BPG’s entitlement to participate in the proceeds of the sale of the land developed.
In general terms, the economic entitlement provisions of the Duties Act impose duty where a landholder (being a company or unit trust) grants a right to another person to share in proceeds or profits derived from the sale or use of land, which exceeds 50%.
The Court decided the case in BPG’s favour and the assessment of duty was overturned. In reaching its decision, the Court determined that the ‘economic entitlement’ provisions of the Duties Act:
are anti-avoidance in nature, and are not intended to create an additional separate head of duty;
apply to landholding entities, as opposed to particular parcels of land, and therefore require that all land of the landholder is to be taken into account for the purposes of determining the interest acquired, and not merely the land to which the relevant agreement relates; and
require that, for the purposes of timing, the entry into the agreement is the relevant date for determining the interest acquired.
The decision provides some clarity for parties entering into PDAs, and other arrangements where rights are acquired in relation to landholders, as previously there was little guidance as to the interpretation of some of the more ambiguous aspects of the economic entitlement provisions.
Given that the decision limits the scope of the economic entitlement provisions, the Commissioner may appeal the decision.
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