Western Australia State Budget 2019-20

The Amendments seek to broaden the concept of “land” for the purposes of both transfer duty and landholder duty. However, the largest practical impact is expected to be in relation to landholder duty. Landholder duty applies to a 50% or more acquisition (or increased interest) of a company or unit trust which has an entitlement to “land” with a market value of $2m or more, with a top duty rate of 5.15% (plus an additional 7% if foreign landholder duty applies).

The Amendments extend the definition of “land” to include anything “fixed to land” (eg bolted or attached to a wall or floor by more than its own weight), which is more in line with the other States and Territories (except New South Wales and Australian Capital Territory). This change will now likely include property such as retail/office fitouts in determining whether the $2m threshold is met. Practically, this means that any relevant acquisition of a company or unit trust would need to be tested against the $2m landholder threshold to determine if landholder duty is payable. If the entity is a “landholder”, duty (and potentially foreign landholder duty) is not only charged on the value of “land”, but also certain goods located in Western Australia such as plant and equipment.

Historically, the concept of “fixed to land” has been confined to mining tenements, which has meant that taxpayers who have leasehold interests only (eg retail and office premises) have largely been outside the landholder duty base as they would not constitute a “landholder”.  

The Amendments widen the circumstances where otherwise unrelated investors in a company or unit trust are treated as making the investment as one, thereby collectively acquiring 50% or more interest in a landholder and resulting in liability to landholder duty. 

Example 1

If each of these investors acquired their interest at the same time, under the same agreement, for the same share price and on the terms of a mutually agreed shareholders agreement, it is likely that each of their interests would be aggregated on the basis that it “forms, gives effect to or arises from what is, substantially one arrangement”. 

The ability for the Commissioner to determine that these types of arrangements should not be aggregated on the basis that they are acquired and employed independently and not acquired or employed for a common purpose has been removed for these types of circumstances.

If land is not yet acquired, the timing of entry into land acquisition documents to prevent effective double duty on the investment should also be carefully considered.

Unlike other jurisdictions, many acquisitions of interests in entities within a corporate group were not subject to landholder duty in Western Australia. The Amendments seek to bring Western Australia more in line with other States and Territories whereby any entity acquiring a 50% or more interest (or increased interest) is subject to landholder duty regardless of the ultimate ownership and relationship between the parties.

In addition, the connected entity exemptions are changing such that the exemption will be revoked if a transferee leaves the family (ie the corporate group) within three years of an exempt transaction. The proposed changes will make it more difficult to undertake such structuring without paying duty, particularly if it is in the context of a sale or selldown to an unrelated party.  The new revocation provisions should not apply to transactions which happened before commencement.

The Amendments also introduce some further qualifying criteria similar to those found in Queensland which require that consideration cannot be provided by a person outside the family other than by way of loan.

The Amendments seek to aggregate certain transactions which would not have otherwise been (at least partially) subject to either transfer duty or landholder duty.  Given the complex nature of the provisions, it is best illustrated through the following examples

Separate acquisition of goods and a landholder

Previously a separate sale of a “landholder” and direct sale of goods would not give rise to a liability to duty on the value of the chattels. However, the Amendments aggregate a relevant acquisition and a transfer of chattels, such that the transfer of chattels become subject to transfer duty.

Example 2

Company B is a landholder and Company C holds chattels

Before amendments

After amendments

Aggregation of entities which are not separately a landholder

Previously the acquisition of two or more entities which do not individually have an entitlement to land at or above the landholder threshold of $2m would not give rise to any duty. However, the Amendments require all of the land to be counted together, making it more likely that an acquisition of a group of entities will be subject to landholder duty.

Example 3

Company A acquires Company B and Company C

Before amendments

After amendments

The same outcome would apply if Company B is a landholder and Company C had no entitlements to land in Western Australia.  That is, an entity which only holds chattels would still be aggregated as a relevant arrangement even though it does not itself have an entitlement to land.

Corporate group structures can be quite complex.  This can be due to a variety of reasons, including financing, risk and acquisition of legacy group structures.  The Amendments broaden the “look-through” provisions such that various links to subsidiaries and other entities are combined in the effort to find a landholder, typically towards the bottom of a corporate group chain.

Example 4

Before amendments

Company A is not linked to D Unit Trust because neither B Unit Trust nor Company C is linked to D Unit Trust.  Therefore, even if Company D as trustee for D Unit Trust is a landholder, it would not cause Company A to be a landholder, and an acquisition of Company A would not be subject to landholder duty.

After amendments

Company A now has a total direct or indirect interest in D Unit Trust of 50% and Company A is now linked to D Unit Trust. Therefore, if Company D as trustee for D Unit Trust is a landholder, Company A would also be a landholder, and an acquisition of Company A would be subject to landholder duty.

These changes could particularly apply to global corporate groups, particularly when undertaking upstream restructures, well above the Australian head entity.  While most other jurisdictions have similar “look-through” provisions, corporate groups with significant entitlements to land in Western Australia may need to reconsider the way in which restructures are implemented, particularly with a view to ensuring it qualifies for a connected entity exemption if landholder duty would otherwise apply.

The Amendments introduce fixed infrastructure rights as a new category of dutiable property and land.

Rights of control, access or operation of fixed infrastructure where ownership is effectively acquired through a licence or contractual arrangement (rather than outright ownership) were not previously dutiable. However, the Amendments include such rights as dutiable property and land along with statutory licences authorising the ownership, operation or control of fixed infrastructure.

Further, rights of control (and in more limited circumstances rights of access and statutory licences) of fixed infrastructure will be treated as land for landholder duty purposes.

These measures may have a material impact on the financing and viability of infrastructure development for both private and government led developments.  Such developments are historically modelled and financed on the basis of a “no duty” outcome, which is usually achievable in all States and Territories (including Western Australia before the Amendments).  For that reason, we foresee stamp duty to be a material upfront consideration for modelling the financial viability of future infrastructure development in Western Australia.

These measures, coupled with the move to the “fixed to land” model described above, are also likely to have a material impact on the economics of the construction and development of renewable energy projects in Western Australia.

Example 5

Company A grants Company B a licence to construct, control and operate a hotel which is located on Company A’s land

After amendments

The Amendments also introduce a new category of dutiable property and “land”, being derivative mining rights.  Historically it was the practice of the Commissioner to treat such rights as dutiable as an interest in a mining tenement.  However, the Western Australia Court of Appeal rejected that interpretation in Commissioner of State Revenue v Abbots Exploration Pty Ltd [2014] WASACA.  The Amendments have essentially been introduced to overcome that decision.  Incidentally, the Queensland Commissioner was faced with a similar circumstance in its categorisation of certain mining rights as an interest in land, with the Supreme Court of Queensland upholding the taxpayer’s interpretation in Sojitz Coal Resources Pty Ltd v Commissioner of State Revenue [2015] QSC 9.  The Queensland legislation was also amended.

A derivative mining right is essentially an authorisation for a person to explore for and mine specific minerals on a person’s tenement.  The Amendments refer to an authorisation under section 118A of the Mining Act 1978 (WA), however it also refers to an authorisation “of a kind” described in that section, which is intended to incorporate private agreements which are not specifically granted under that section.  It remains to be seen how close a private agreement needs to be to the legislation for it to be considered “of a kind” and therefore taken to be dutiable property or land (as the case may be).

The Amendments also include changes which have the following effect:

• Pastoral leases are included in the definition of “land”
• There is a broader application of the family farm exemption to include more relatives and structures.
• A change to the way in which duty is calculated on the retirement of a partner or dissolution of a partnership
• More prescriptive requirements are introduced to qualify for the concession concerning bare trustees, including a 60 day time limit for registration after a transfer has been stamped
• Introduction of a new concession applicable to subdivisions
• Introduction of an exemption for non-profit bodies upon winding up, transfer of incorporation or amalgamation