Economic entitlements: what you need to know for Victorian property transactions

There have been recent amendments to the Duties Act 2000 (Cth) (Chapter 2, Part 4B) in relation to stamp duty and economic entitlements. We list below how these changes impact stamp duty payable for Victorian property transactions and key factors for avoiding unexpected duty obligations.

Will getting an economic benefit from a property or from development of a property mean that I need to pay duty up front?

Duty is now applicable in circumstances where a party is obtaining or deriving an economic benefit from a property or from development of a property. This reform by the Victorian government is a departure from the previous approach of economic entitlement duty, being formerly assessable only in circumstances where a party was obtaining an economic interest in a landholder entity. Now, economic entitlement duty applies when obtaining an economic interest in a specific property (subject to certain thresholds).

Wasn’t there economic entitlement duty anyway?

Prior to the changes, which came into effect on 19 June 2019, landholder duty was payable in certain circumstances where the economic entitlement from property held in land rich private companies or unit trusts was shifted to another party, commonly by way of share or unit transfers, but also through development agreements or other streaming arrangements, depending on how these agreements directed economic entitlement from the entities as a whole.

Importantly, this did not apply to individuals, discretionary trusts or Self-Managed Superannuation Funds (‘SMSF’s’) and, with respect to economic entitlement, the Duties Act 2000 only looked to assess duty in circumstances where a party was acquiring at least 50% or more of the benefit from a landholder (as a whole) or otherwise gaining control of the landholder.

What has changed?

Now however, with the addition of Part 4B into the Act, if there is an acquisition of an economic entitlement or interest in particular piece of land (whether held by an individual, company, trust or SMSF), where the value of that land is more than $1 million, duty will be payable on a proportional basis (noting there is no longer a 50% threshold).

If no proportion is stated in the agreement upon which the acquisition is based, then duty will be deemed to be assessed for 100% of the value of the land. It no longer matters which form of entity holds the land, nor does it matter what percentage of the economic entitlement in the whole entity is being shifted under an agreement or when that shift is to happen.

The duty will be assessed at the time of obtaining the right to the economic entitlement (i.e. upon signing an agreement) and will be payable 30 days after the date the economic entitlement has been obtained. In effect, the duty is now payable upfront for common arrangements such as development agreements, as well as any other agreement which streams economic benefit to parties other than the land owner.

Pragmatically, the State Revenue Office (‘SRO’) has excluded from duty certain economic entitlements in the form of genuine and industry based professional service fees, for example:

• sales agent’s commission

• architect’s fees, and/or

• project manager’s fees

In relation to the above, disclosure can be required where the service provider is a related party. Please note that this exclusion is, in effect, discretionary by the SRO, as the Act itself does not include any exclusions.

What you need to know

Most importantly, as a result of these changes, it is important to be aware of the duty implications of entering into any agreement that streams or directs economic entitlements from a property. The SRO’s broader rights will mean that agreements previously not subject to duty will now be captured. Under these amendments, it is important to understand your duty obligations, and the best structures for any land related projects before any agreements are entered into (otherwise duty and penalties may be an unpleasant surprise!).

How can Sharrock Pitman Legal assist me?

We have an Accredited Specialist in Property Law and we are well equipped to provide you with expert advice surrounding your economic entitlements, property transactions or any queries you may have on these new provisions. If you have any queries, please contact our Property Law Principal and Accredited Specialist in Property Law, Andre Ong on 1300 205 506 or alternatively fill in the contact form below.  

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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