Proposed changes to the Duties Act will impose duty on developers who make development agreements with land-owners.
Property developers will now pay duty on up to 100% of the market value of the land, depending on the terms of the development agreement.
Development agreements currently allow developers and landowners to enter into an agreement to develop land.
Development agreements enable the parties to manage development risk, reduce up-front costs, share profits and minimise duty and tax liabilities to align with receipt of income.
Released on Tuesday 28 May, the State Taxation Acts Amendment Bill 2019 imposes duty on a person who acquires an ‘economic entitlement’ in relation to relevant land.
An economic entitlement arises if an arrangement is made in relation to land valued more than $1 million and the arrangement entitles a person who is not the landowner to participate in:
- income, rent or profits of the land; or
- capital growth of the land; or
- the proceeds of sale of the land; or
- any combination of these entitlements.
Duty is charged based on the percentage of all entitlements that the person is entitled to receive under the economic entitlement.
For example, if a development agreement entitles the developer to 45% of the profits, the developer is liable to pay duty based on 45% of the market value of the land at the time the development agreement is made.
This new duty liability extends to all land-owners, including companies, trusts (both unit trusts and discretionary trusts) and natural persons.
Broadly, the current regime only imposes duty if a party acquires an entitlement of 50% or more in a corporate land-holding entity.
Onerous deemed 100% ownership
A particularly onerous provision of the Bill imposes duty based on a deemed 100% ownership of land, in circumstances where the arrangement:
- does not specify a percentage of the economic entitlement; or
- includes any other payment to the person or an associated person; or
- includes 2 or more the types of entitlements as set out at 1, 2, and 3 above.
Under typical development agreements, developers will now incur duty proportionate to their share of the entitlement or worse, trigger liability for duty based on deemed 100% ownership.
If the Bill passes, the changes will apply from the date of Royal Assent.
For more information on the Bill, or to discuss how the proposed changes might affect you, please contact: Morgan Scholz, Senior Associate on (03) 8600 8890 or email@example.com; Geoff Kliger, Senior Special Counsel, on (03) 8600 8878 or firstname.lastname@example.org; or Mark Yaskewych, Principal Lawyer (03) 8600 8870 or email@example.com.
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Note: This update is a guide only and is not intended to constitute legal advice.