There has been an ongoing debate amongst those of us who practice in stamp duty as to how duty should appropriately apply to tenant’s fixtures, particularly in the context of renewable energy projects.

This week’s decision of the Supreme Court of NSW in SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] (“Decision”) has, subject to any appeal, resolved much of that uncertainty.

How to value landholdings

The part of the Decision which is of more interest and value for current and future transactions, is the approach to valuing such interests.

The transaction subject to the Decision was an acquisition of a number of entities which together held and operated a windfarm in NSW, and ultimately turned on how the landholdings were to be valued from a duty perspective. The Decision held that the value is to be determined by reference to the market value of the landholdings (in this case the windfarm infrastructure including towers, turbines, and associated infrastructure) in the context of a sale of a going concern. That is, it is the value in situ, to an operator of a windfarm, which is the relevant proxy, not the value of any of the separate component parts which might be sold in isolation of the business.

Renewable energy and infrastructure

For the most part, despite previous arguments to the contrary, and with the possible exception of South Australia in the case where the underlying land is primary production, one would now expect material stamp duty to be payable on any acquisition of a windfarm in any State or Territory. Particularly given the expansion to “fixed to land”, one would also expect the same outcome for operational solar farms.

Manufacturing and expensive “fixed” equipment

How the Decision will apply to the manufacturing industry will also be of interest. To date, revenue offices have broadly accepted simply adopting the written down value of any plant and equipment which is “fixed” to determine the dutiable value. I suspect that this has largely been a (welcome) pragmatic approach. If there is one thing that a taxpayer dislikes more than paying a tax, it’s paying professional advisors to help them pay said tax. The approach to date has meant that plant and equipment have traditionally been assessed without too much technical or valuation advice needed.

However, there can often be a material difference between the written down value and the value a purchaser ascribes to certain plant and equipment, eg through a Purchase Price Allocation. A piece of bespoke (but aged) machinery that has been fully depreciated may still have material value in the context of a manufacturing facility. Pegging the value of the machinery to the value as a going concern may give rise to a materially higher amount than the written down value.

The Decision leaves open the door for revenue offices to insist on expensive plant and equipment valuations in order to assess the transaction to duty, which will ultimately lead to higher compliance costs in the form of technical professional and valuation advice.

Retail and medical facilities

It is certainly not intuitive to think that retail shops and medical facilities could be “landholders”. However, all one needs is $2m (for example, in the case of NSW, Vic, Qld, and WA) of plant and equipment that happens to be “fixed” in some way to be taken to be a landholder. It is often the case that store fitouts or fixed medical equipment (even if just fixed for stability or security purposes) cause the threshold to be breached.

One would hope that the pragmatic approach using written down value mentioned above continues to apply for these types of businesses. Otherwise, the valuation process itself could cause additional time and expense, just to calculate the duty, without perhaps much difference in the ultimate outcome.

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