Victorian Court of Appeal confirms stamp duty on shares acquired in a landholder by unrelated investors

This decision reinforces the breadth of the landholder duty provisions and is a timely reminder of the need for careful planning in the context of capital raises.

On 9 August 2024, in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175, the Victorian Supreme Court of Appeal upheld a Victorian Civil and Administrative Tribunal (VCAT) decision that 18 unrelated investors acting independently were jointly and severally liable for landholder duty on the acquisition of shares in a land holding SPV.

Background

In 2011, Oliver Hume Property Funds Group (Oliver Hume) established an SPV, Diamond Creek Pty Ltd, for the purpose of acquiring and developing land in Victoria. In 2014, the SPV circulated an Information Memorandum (IM), seeking to raise capital to fund the development of the land. It was a condition of the IM that:

• A target of $1.8 million shares at $1 per share be achieved, or else the development would not proceed;
• The investors agree to the SPV’s appointment of Synergy Funds Management Pty Ltd (part of the Oliver Hume group) to manage the day-to-day affairs of the SPV and to act as project manager of the development; and
• The investors agree to be bound by special terms in the SPV’s constitution, including that the above management agreement could not be terminated except with the authorisation of a 90 per cent vote of the SPV’s shareholders, and that the SPV must be wound up as soon as the development was completed.

The IM was not required to be lodged with ASIC due to an exemption available under the Corporations Act 2001 (Cth).

On 2 July 2014, the SPV fulfilled the capital raise, issuing and allotting 1.8 million shares to 18 unrelated investors. The investors’ only connection was that:

• They dealt with the same issuer of shares (i.e. Oliver Hume) and around the same time, in accordance with the widely circulated IM; and
• Each transaction was interdependent in so far as the transactions would only occur if the target total of $1.8 million subscription proceeds was met.

The Commissioner aggregated these transactions on the basis that they were ‘associated transactions’ and part of ‘substantially one arrangement’ for the acquisition of an interest in a landholder, and assessed the investors for landholder duty totalling $151,235 plus penalties and interest under the Duties Act 2000 (Vic) (Duties Act).

Legislative Background

The landholder duty regime contained in the Duties Act seeks to impose duty on an acquisition of a 50 per cent or greater interest in a ‘landholder’ that is a private company (20 per cent for unlisted unit trusts). In Victoria, an entity is a landholder if it has interests in Victorian land, the value of which is greater than $1 million.

Importantly, an acquisition can be assessed for duty in isolation if it exceeds the 50 per cent threshold or when aggregated with other acquisitions made by ‘associated persons’ or other acquisitions made as part of an ‘associated transaction’. Relevantly, an ‘associated transaction’ includes an acquisition made in circumstances which ‘form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions’.

VCAT Decision

The VCAT held that the Commissioner was correct to aggregate the investors' acquisitions on the basis that they arose from ‘substantially one arrangement’ despite the investors being unrelated parties and acting independently of one another. Specifically, the VCAT held that the transactions had a ‘unity of purpose’ because:

• The transactions stemmed from the same offer and terms outlined in the IM;
• The transactions were conditional on each other and would only occur if the $1.8 million target subscriptions were met;
• The purpose of the transactions was the same; and
• The investors agreed to be bound by the terms of the constitution of the SPV which specified the management and operating structure of the SPV.

While the Commissioner, in Revenue Ruling DA.057 ‘Landholder Provisions - Meaning of Associated Transaction’ (Ruling), indicated that he would not regard acquisitions of interests by independent members of the public as an ‘associated transaction’ if the acquisitions were made in response to a genuine public offer under a product disclosure statement or prospectus lodged with ASIC, the VCAT held that the Ruling did not apply to Oliver Hume because the IM was not lodged with ASIC. The VCAT also reinforced that, in any case, the Commissioner’s concession provided in the Ruling did not have the force of law.

Court of Appeal Decision

The Court of Appeal upheld the VCAT decision. In addition to the findings of the VCAT, the Court of Appeal found that:

• Although not necessary to establish that the transactions arose from ‘substantially one arrangement’, the transactions were ‘bilateral’ given they involved both the investors and the SPV and this could be inferred from the circumstances, regardless of the knowledge or intentions of the shareholders themselves;
• The content of the constitution of the SPV itself, rather than the fact that each investor became bound by it, was highly significant as it evidenced a clear purpose which was shared by both Oliver Hume and the investors;
• The fact that the investors were unrelated to one another was irrelevant because the test of an ‘associated transaction’ (as opposed to the test of an ‘associated person’) is determined with reference to the objective characterisation of the dealing itself and its relationship with other transactions comprising the ‘arrangement’, rather than the relatedness of the parties;
• The ‘associated transaction’ test is not limited to circumstances where there is an attempt to evade tax by ‘contract-splitting’, rather the test does not require the acquirers to have any particular intention at all; and
• The Commissioner’s assessment was consistent with the legislative purpose of the landholder duty provisions which seek to ensure that any transfer of an economic interest in land (whether direct or indirect and whether in isolation or aggregated) will be treated similarly for revenue purposes.

Implications

The decision highlights that capital raise transactions made pursuant to an IM have the potential to be aggregated as ‘associated transactions’ for the purposes of assessing landholder duty. The decision also has the ability to influence the interpretation of similarly drafted provisions in other Australian jurisdictions and therefore should not be seen as being limited to Victoria.

While the Court did not ultimately decide whether any one single factor was sufficient to engage the ‘associated transaction’ provisions, it is clear that each case will need to be judged based on all relevant facts and circumstances.

In light of the decision, it is crucial that stamp duty advice is sought on all current or proposed capital raisings, irrespective of whether the offering document is to be lodged with ASIC.

If you have any questions regarding this decision and how it may impact your business dealings, please reach out to a member of the Grant Thornton team today.

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