Tao – Supreme Court upholds VCAT decision. Changing the director of a trustee company can trigger landholder duty
The Victorian Supreme Court in its recent decision (link here) has refused the taxpayer leave to appeal the VCAT decision of Tao v Commissioner of State Revenue [2024] VCAT 637.
This upholds the decision of the Victorian Civil and Administrative Tribunalthat imposed landholder duty on a change of shareholder and director of a trustee company and confirms the drastic widening of the landholder duty change of control provisions which no longer requires the acquisition of units or shares or any rights similar to share or unit ownership.
The earlier decision
In 2024, the Victorian Civil and Administrative Tribunal (VCAT) held that a taxpayer had made a dutiable relevant acquisition on acquiring control over a private landholding unit trust by being appointed director of the trustee company.
See our Sladen Legal Summary here.
Legislation
In a provision unique to Victoria, section 82 of the Duties Act 2000 (Vic) deems a relevant acquisition to be made where a person acquires control over a private landholder:
Acquisition of control
(1) Despite anything to the contrary in this Part, if a person within a 3 year period acquires, directly or indirectly, control over a private landholder, other than by a relevant acquisition dutiable under this Part, then, on the acquiring of that control, the person is taken, for the purposes of this Part, to have made a relevant acquisition in the landholder of—
(a) 100%; or
(b) a lesser percentage determined by the Commissioner to be appropriate in the circumstances.
A private landholder is an unlisted company or private unit trust scheme that directly or indirectly holds land in Victoria with an unencumbered value of $1 million or more.
Background
66 William Road Pty Ltd was the trustee of the WCT Unit Trust, which held a development property in Victoria with a value above $1 million. The WCT Unit Trust was therefore a private landholder for the purposes of the landholder duty provisions.
At the relevant time, 25% of the units on issue in the WCT Unit Trust were held by Amber Investments Pty Ltd. Mr Tao was the majority shareholder of that company (holding 60% of the shares on issue in that company).
On 11 February 2014, Mr Tao acquired the 4 shares on issue in 66 William Road Pty Ltd from the outgoing director and on 6 March 2014 he became the sole director and secretary of the company (replacing that outgoing director).
It was these two steps that were alleged to be the mechanism by which Mr Tao obtained control over the WCT Unit Trust.
The Commissioner of State Revenue imposed duty on the alleged acquisition of control by Mr Tao, despite neither Mr Tao nor Amber Investments Pty Ltd acquiring any further units in the WCT Unit Trus. Mr Tao was assessed by the on 100% of the underlying land value (despite having already a 25% interest in the WCT Unit Trust), however VCAT reduced this to 85% (taking into account the effective interest already held by Mr Tao of 60% of 25%).
Issue before the Supreme Court
The Supreme Court was asked to consider:
Whether the Tribunal failed to notice – and construe – subsection 82(1) as a composite provision (ie deeming provision for acquisition of 100% and requirement to consider dispensing discretion)?
Whether the Tribunal failed to appreciate – and articulate – the actual purpose and intended function of the dispensing discretion in paragraph 82(1)(b)?
Whether considerations that are highly relevant to the exercise of the dispensing discretion were failed to be taken into account by the Tribunal?
Arguments
The Commissioner argued that section 82 “as it had evolved … changed it from an anti-avoidance provision primarily to its own head of duty” (paragraph 81).
The Taxpayer’s core contention was section 82 relies on concept of “beneficial interest” and so should only apply where there is a change in beneficial ownership.
Outcome
On all grounds, leave to appeal was refused.
The Supreme Court upheld the decision that Mr Tao acquired control over WCT Unit Trust by becoming the sole shareholder and director.
Under the decision, it was irrelevant that the company was trustee only and therefore did not hold any beneficial interest in the land and that no interest like beneficial ownership of the property was acquired by Mr Tao.
At paragraph 197 (see also paragraph 105), the Supreme Court stated:
Following the introduction of the landholder provisions in 2012, it is clear that the three classes of ‘relevant acquisition’ set out in Part 2 of Chapter 3 are different in character — direct interest| economic entitlement | control — and it is not (or is no longer) correct to describe the landholder provisions in the way the applicant does as being ‘provisions, which impose a tax on significant changes of beneficial ownership of land held by certain entities’
Further at paragraph 219:
While matters such as ‘beneficial ownership’, ‘entitlement’, and an ‘hypothetical’ or ‘notional’ winding up may be relevant in the context of for e.g., an acquisition of a direct interest under ss 79–80. It is unclear why and how such matters are relevant in the context of an acquisition of control under s 82.
Key Observations
The Supreme Court decision has meant that the drastic widening of the landholder duty provisions by the State Revenue Office will continue.
This is despite the State Revenue Office’s own website providing (link here).
The provisions can also apply to a person who is appointed to the board of directors of a landholder (or the corporate trustee of a landholder). Provided the shareholders or unit holders have not made arrangements that allow the director to benefit, or exercise rights which confer benefits similar to holding an interest in the landholder, the Commissioner will take the view that the director has not acquired control (and made a relevant acquisition of an interest of 100%) as a result of such an appointment.
At present, it is hard to see how “control” has been acquired over a private unit trustby the mere acquisition of shares in the trustee company and/or directorship of the company.
Under the terms of most private unit trusts, the unitholders have the right to appoint or change a trustee company (this is also found in the Supreme Court’s supervisory role over trusts under general law and statutory law). The unitholders have the actual control over the unit trust and can exercise that control regardless of the views of the directors of the existing trustee company.
Further, with respect to the Supreme Court, an analysis of section 82 in isolation of the taxing provisions themselves is at best incomplete.
Section 82 provides that a “relevant acquisition” is made on the acquisition of control over a private landholder. However, once a “relevant acquisition” is made, landholder duty is charged under subsection 86(1) of the “unencumbered value of all land holdings of the landholder in Victoria” (proportioned by the % interest acquired).
As tax is being charged on a relevant acquisition by reference to an acquisition of an interest in the underlying land assets, whether or not anything like an acquisition of a beneficial interest in the underlying land assets has been acquired by the taxpayer must be relevant.
Otherwise, we have, like here, an example of taxation without applying without any corresponding transaction or acquisition of an interest.
Does this mean that all directors of trustee companies can be liable for landholder duty?
Unfortunately, yes. Any time there is a change of director of a trustee company of a private landholding unit trust, these provisions must be considered.
There is a real risk of duty applying where a single director is replaced or where multiple directors are replaced at once.
Is there a safe harbour?
Most of the standard exemptions from landholder duty become irrelevant for changes of control as they only apply to direct acquisitions of units or shares.
However, for this case – a single change of trustee of the landholder unit trust should not be subject to landholder duty as the change of trustee exemption applies (at least on the transfer of land to the incoming trustee). However, is it possible that the State Revenue Office may argue that this too is a change of control over the landholding unit trust?
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Please contact us with any questions in relation to the landholder duty regime or any other State Tax issues.
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Nicholas Clifton
Principal Lawyer
T +61 3 9611 0154 | M +61 401 150 955
E nclifton@sladen.com.au
