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Are you purchasing shares or units in a landholding trust or company? Beware!

In NSW when you buy land, you pay duty.  When you buy shares in a company or units in a trust, you can also pay duty at land rates where the company or trust is considered a ‘landholder’.  The NSW Government has now made it more likely that the acquisition of shares or units will be subject to duty at land rates, and also made it easier for them to collect that duty.

In New South Wales, landholder duty is paid on the acquisition of a "significant interest" in a "landholder".  A landholder is defined to include a unit trust scheme or a private company that has landholdings in New South Wales with a threshold value of $2 million or more.  A significant interest is one which entitles a person to 50% or more of the property of the landholder, though there are special rules about measuring what acquisitions count towards that 50% threshold.  While the rules also apply to listed unit trusts and companies, there are different thresholds that apply to these entities.

On 24 June 2020, the State Revenue Legislation Further Amendment Bill 2020 (NSW) received Royal Assent and is now an Act of Parliament.  This Act introduces 3 significant changes to the landholder provisions.

Change to the method of determining the threshold value

The basis used to determine the threshold value of the landholdings of the unit trust or company has changed.  Previously, the threshold value was based on the unimproved value of landholdings (i.e. the value recorded in the land tax assessment).

From 24 June 2020, the threshold value is based on the unencumbered value of the landholdings.  The unencumbered value is effectively the market value or the sale amount that the landholdings might be expected to achieve in the open market disregarding any encumbrances, such as mortgages.

As an example, assume a company has landholdings that have a market value of $2,500,000 but the unimproved value of the land is only $1,700,000.  Before the changes, the company would not be a landholder. From 24 June 2020, the company will be a landholder.

Change to the meaning of land

The definition of "land" has also been changed for the purposes of determining the value of landholdings.  Land now includes anything fixed to land, even if it is not considered a fixture at law.

Whether certain assets of a landholder are considered to be land or goods determines whether duty is payable and the amount of duty that is payable.  Determining whether items constitute land or goods is not always straightforward.  It is clear that land does not include items such as livestock, registered vehicles and goods under manufacture.

This amendment provides Revenue NSW with a discretion to determine that a thing fixed to land is not part of the land if the thing is not owned by the landholder or their associate, and is not used in connection with the use of the land.

Joint and several liability for landholder duty

Landholder duty is imposed on the person who acquires the interest in the landholder.  Persons who are "associated persons" of the acquirer and who also have an interest in the landholder are jointly and severally liable for the duty.

The changes increase the number of persons who are jointly and severally liable to pay the duty to include:

  1. the landholder (that is, the company or trust owning the valuable land); and

  2. any persons who have their interests aggregated for the purpose of working out whether a dutiable transaction has occurred.  This includes persons who acquired their interest in the landholder with the relevant acquirer under a single arrangement.

Revenue NSW will also now be able to lodge a caveat over the land to recover the landholder's liability for the duty.

Should you wish to discuss the potential implications for you or your clients, please contact our tax team.


The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.

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