Shaun Garlick, Principal at Shaun Garlick & Co, discusses the proposed major changes to the Duties Act 2008(WA) which he says will result in a significant update on the current scheme. Beware the potential error in thinking that if you acquire an entity that has land valued at less than $2m, duty won’t apply; you may need to think again, he writes.
Shaun will present on the topic, WA Transfer Duty: Including Trusts, Partnerships and Superannuation Funds, at the Duties Act Review Conference on Wednesday, 20 March.
A number of proposed amendments to the Duties Act 2008 (WA) (Duties Act) will result in a significant update on the current scheme.
First up are the proposed changes on how a farm-in will be treated under the Duties Act, the changes will raise significant issues on how the funds spent and allocated under a farm-in agreement should be considered in order to avail a transaction to the concessions under the Duties Act. The proposed legislation will be backdated to 28 November 2018. Any drafting of a farm-in should carefully consider the requirements of the proposed amendments.
Second, a significant volume of changes designed to ‘stop duty leakage’ has been presented to parliament under the Revenue Laws Amendment Bill 2018 (WA). Effectively, longstanding approaches to landholder duty and corporate reconstruction under the Duties Act will need to be completely reconsidered. The implementation of the proposed amendments will substantially change current approaches in this area.
For example, the current approach for the purpose of assessing whether you are ‘land rich’ involves determining whether the acquired entity owns land of $2m or more and whether you (and aggregated parties) hold 50% or more. Instead, with the proposed changes, you will have to work through all entities to see if an aggregation of any interest (directly or indirectly) is going to add up to 50% or more.
Furthermore, beware of the potential error in thinking that if you acquire an entity that has land valued at less than $2m, duty won’t apply. You may need to think again. For example, suppose that within twelve months of an initial entity acquisition (with land valued at less than $2m), you buy a second entity completely unrelated to the first entity acquisition. If that entity also has land (of any value) then you are deemed to have acquired two entities under one arrangement. Therefore, under the new scheme, you will have a landholder obligation if both entities’ combined land value is $2m or more. There is an out to this if it is not one arrangement, however this is up to the Commissioner to decide, meaning a lodgement is necessary. A further caution, the second entity may only contain chattels, and it too could be caught.
Another key issue to consider is the cost/benefit of a corporate reconstruction exemption. Under the proposed amendments there will be the burden of a 3-year post association which could result in an automatic claw back the duty if the association is broken (50%). Our takeaway on this point is that if you are planning on transferring assets intra group now is the time to do it before the new legislation becomes law.
Third, the Commissioner had a win under Commissioner of State Revenue v Placer Dome Inc (now an Amalgamated Entity Named Barrick Gold Corp) (2018) 362 ALR 190 (Placer Dome). This case needs to be considered in the light of any landholder duty acquisitions. A number of issues pertaining to valuation arise from this case, however in our view these can be distinguished from the valuation exercise under the Duties Act. Notwithstanding our views, a cautious approach will be needed when considering the value of land in a land rich company.
So where does that leave us? Our takeaway is that the High Court in this case was careful to emphasise that it is discussing a statutory valuation exercise – specific to the context of the legislation. The Stamp Act 1921(WA) land rich provisions are noticeably different from the Duties Act 2008 (WA) provisions. The former, as stated by the High Court, was a statutory valuation exercise of a going concern value for land as a ratio of a going concern value of the enterprise. No such statutory requirement exists under the Duties Act – it is simply “the unencumbered value of land, chattels or land and chattels”. There is no requirement to ascertain an entity’s value, going concern or otherwise.
If the Commissioner takes away from Placer Dome that it supports the current observed practice (that a top down approach is appropriate) then we question whether there is a need for a valuation of ‘land’ as often requested by the Commissioner. After all, the Placer Dome case tends to suggest you simply do a mathematical evaluation, get the purchase price (no matter what is paid) then simply deduct a few balance sheet items or known intangibles and then assess the balance.
Yes, an overly simplistic view, but possibly the resultant outcome. A request for a valuation seems redundant if this is the approach the Commissioner is to take by using the Placer Dome case as authority. In our view, we think there is enough difference in the legislation and commentary in the case to differentiate a valuation required under the Duties Act. It may assist if the Commissioner issued a Practice Direction of her intended approach as a result of this case.
Shaun Garlick, Principal of Shaun Garlick & Co is a specialist in the area of Duties. Bringing more than 36 years’ experience to his role, Shaun’s expertise stretches across complex transactions such as landholder transactions, business restructuring, corporate reconstruction exemptions and large property acquisitions. Known for his depth of knowledge of stamp duty legislation and application across the different Australian jurisdictions, Shaun is a trusted advisor to both small businesses and multinationals. Shaun spent 16 years at a senior level with State Government dealing in all aspects of stamp duty administration. Moving into private practice in 1999 Shaun was asked to join and manage the Stamp Duty team in a big 4 accounting firm, he has also performed the same function in another big 4 accounting firm. In 2003 he set up his own independent consulting firm, gaining even greater exposure to a wider range of commercial issues. Shaun’s expertise includes technical and practical advice in relation to mergers, takeovers and acquisitions; structuring of stamp duty for property related acquisitions; Landholder transactions within the property and resources industries and negotiations with the State Revenue Office on stamp duty. Contact Shaun at [email protected]or connect via LinkedIn