Yesterday, RevenueWA issued Revenue Ruling DA26.0 (“Ruling”) which sets out its interpretation of major amendments which commenced on 13 June 2019, some 21 months ago. While the guidance is welcome, it is not necessarily good news for taxpayers.
While the amendments were comprehensive, and changed a number of provisions in the Duties Act 2008 (WA), the Ruling focuses on the meaning of things “fixed to land” and fixed infrastructure rights. While the concept of “fixed to land” (as distinct from a “fixture”) is now commonplace in Australian stamp duty law, fixed infrastructure rights are unique to Western Australia. The changes were promoted as making it easier to determine whether a transaction is subject to duty and to prevent synthetic arrangements which technically circumvented the Western Australian duty net, with the result that the duty net has been significantly widened, and now catches more transaction than it otherwise would have.
Both the concepts of fixed to land and fixed infrastructure rights broaden the meaning of “land” or “land asset” to things which are not taken to be land for any other legal (or accounting) purpose.
Things fixed to land
The concept of things “fixed to land” or things “fixed to the land” has now been introduced in duties legislation across Australia except the Australian Capital Territory. While it has expanded the duty base, the policy justification has been to take away the technical legal difference between fixtures and chattels (or goods), with a “fixture” requiring an objective intention for the thing to be permanently fixed to the land for the better use and enjoyment of the land. The expanded concept of “fixed to land” has sought to remove the objective intention test. Practically, this has meant that when asking clients to identify things which are “fixed” for duty purposes, the usual message is whether the thing is somehow physically fixed to land by more than its own weight (eg bolted to a floor, wall or ceiling, even for stability purposes).
The Ruling goes further than that.
The Ruling makes it clear that RevenueWA will treat something that is not physically “fixed to land” by more than its own weight (ie merely resting on the ground) as “fixed to land” in circumstances where “it is rendered immovable”. While such a thing might be a “fixture” (and therefore already taken to be land under normal principles), ordinary logic is not likely to conclude it is “fixed”. The example used is railway infrastructure as fixed even though its component parts merely rest on the ground, with counterexamples that portable toilets, industrial bins, shipping containers and photocopiers are not fixed. In our experience, there are many examples of things which fall between a railway line and a shipping container, particularly in the context of a manufacturing facility, which makes it difficult to determine where the line is.
It seems to us that if a crane or gantry can merely pick something up from the factory floor and move it, it should not be “fixed”. However, if it needs to be destroyed in order to move it, it is “fixed” even though it might just be resting on the ground. That is not to say that is the bright line test for all assets, and there are undoubtedly many examples in between these broad concepts, with the result that many assets need to be considered on a case by case basis.
You might think that such nuanced concepts are pretty subtle (and perhaps absurd) just to determine the extent to which duty is payable on a transaction, but unfortunately these are everyday conversations when advising on these transactions, and without proper advice, it is easy to come to the (incorrect) conclusion that a transaction is not exposed to duty.
Fixed infrastructure rights – taxing infrastructure transactions
The concept of fixed infrastructure rights is unique to Western Australia, and designed to prevent synthetic “land” transactions from escaping duty. Nevertheless, the Ruling identifies that ordinary commercial transactions, which are not structured to avoid duty, can also be caught.
The clearest examples are that the operator of a power generation facility or railway, which are taken to hold a “land asset” even though they are merely an operator of the infrastructure and do not actually hold any interest in land. Another example is a Private Public Partnership (or PPP), particularly one that involves social infrastructure (eg, prison, sporting stadium, railway or schools). Typically these transactions are quite properly structured as giving the consortium a long term right by way of licence to operate the asset which it has just built in partial consideration for the risk and expense of construction. It is seen as the conventional and economically efficient way to deliver major infrastructure in Australia, particularly for government and quasi-government bodies, and is not typically designed with a purpose of duty avoidance.
It would seem that while RevenueWA will not seek to tax the entry into PPP arrangements, it does intend to tax the later selldown of the project in its operation phase. Such cost should now be built into the economic model, even at the start, as a later buyer will need to factor duty at up to 5.15% on its acquisition. While this would already be the outcome for a PPP which is based on a lease (such as a toll road) in other States and Territories, it is a distinct difference in tax treatment for social infrastructure PPPs, with the tax ultimately needing to be built into the cost of acquiring an interest in new or existing Western Australian infrastructure.
