On 8 August 2024, the Victorian Court of Appeal handed down its decision in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175. The decision affirms the risk of landholder duty being imposed on capital raisings for investors, even where they are unrelated and unacquainted with one another and independently respond to an offer.
At a Glance
- In a unanimous decision, the Victorian Court of Appeal upheld the decision of Judge Macnamara (sitting as Vice President of VCAT), finding that subscriptions for shares in the taxpayer company, a landholder, by 18 unrelated investors should be aggregated for landholder duty purposes because the acquisitions gave effect to ‘substantially one arrangement’.
- Victoria imposes landholder duty on the acquisition of a 50% or greater interest in a private company that is a landholder.[1] In Oliver Hume no investor individually acquired more than 11.11% of the shares on offer in the taxpayer, but the aggregate interest acquired by the incoming (unrelated) investors was 99.99% (i.e., above the 50% threshold) and landholder duty liability was assessed on this basis.
The Details
- The taxpayer circulated an ‘Information Memorandum’ which sought to raise $1.8 million through an issue of 1.8 million shares to fund a specific property development project.
- Chapter 3 of the Duties Act 2000 (Vic) (the Act) imposes what is referred to as ‘landholder duty’ on the acquisition of a ‘significant interest’ in a landholder. For a private company, like the taxpayer, the threshold for a significant interest is 50%.
- The 50% threshold may be reached by a single acquirer, or, in some cases, multiple acquirers who are ‘associated persons’ or who (even if not associated persons) acquire their interests as part of an ‘associated transaction’. Acquisitions are ‘associated transactions’ if they ‘form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions’.[2]
- The Commissioner of State Revenue’s position was that even if investors are not known to each other, this was no bar to finding their respective acquisitions were ‘associated transactions’. The Commissioner argued that the subscriptions for shares by the 18 unrelated investors arose from “substantially one arrangement”, noting:
- the transactions each stemmed from the same offer and terms set out in the Information Memorandum;
- through subscribing for shares, each investor bound themselves to the statutory contract represented by the taxpayer’s Constitution that entrenched a management agreement. This meant there was a ‘oneness of purpose’ in relation to their investment in the taxpayer company;
- the members committed themselves to a voluntary winding up at the end of the project – this showed that the landholder was a special purpose vehicle with a single purpose;
- each acquisition could not proceed unless others proceeded at the same time on the same terms adding up to an amount of $1.8 million. This meant that each acquisition was not independent of each other acquisition.
The Decision
Justice Kennedy, Justice Macaulay and Justice Lyons concluded:
- Finding that ‘associated transactions’ give rise to ‘substantially one arrangement’ requires a focus on the relationship between the transactions, based on the ‘oneness’ of the circumstances (assessed objectively) in which the investors acquired the relevant interests. It is not focused on the relationship, or conduct, between the individuals concerned.
- There was the necessary ‘oneness’ between the acquisitions by the 18 investors as:
- The acquisitions were interconnected in that no individual acquisition could go ahead at all unless a total of $1.8 million was raised. If this condition was not satisfied, then all application money was to be returned. This was despite the fact that each investor may not have met the others, or even communicated with them.
- Through the transactions, the investors became bound by the Constitution. On its own, this factor may have been of marginal relevance, but the content of the Constitution which contained terms entrenching a management structure to undertake a single land development was highly relevant. The singularity of the undertaking was underscored by the fact that the entity was to be wound up at the end of the project.
- The effect of the acquisitions of the shares on the same day, and in the same way, was to substantively alter the shareholding in the taxpayer to become an entity owned by a group of private investors (as to 99.99%).
- These factors arose regardless of whether the investors were personally ‘acquainted with one another’. Though no one factor was determinative, together, they revealed an interconnectedness between the acquisitions which supported a finding that the acquisitions formed, evidenced, gave effect to, or arose from, ‘substantially one arrangement’, or alternatively ‘one series’ of transactions, for a singular purpose to undertake a property development.
Key Insights
- The test for ‘one arrangement, one transaction, or one series of transactions’ involves an objective analysis of whether there is some connection or interdependence between the circumstances by which persons acquired their interests, such that there should be a determination that there has been a single transfer of the economic interest in the land.
- It is a fact specific exercise requiring a review of documents and circumstances. While the Court identified a number of relevant factors, it did not find it necessary to consider whether any of the factors considered on their own would be sufficient.
- While it appears that the ‘special purpose’ nature of the company and undertaking, expressed in the Information Memorandum and supported by terms in the Constitution, materially influenced the decision in this case, it is not clear whether the same outcome would have occurred if there was an absence of this ‘singular purpose’ for a particular project.
- The decision also raises concerns around what reliance, if any, can be placed on an understood administrative practice of the Victorian State Revenue Office expressed in a public ruling for product disclosure statements or prospectuses lodged with the Australian Securities and Investments Commission.
- Many other Australian states and territories have similar, but not the same, concepts of ‘associated transaction’ or ‘one arrangement’ aggregation and careful consideration will be needed to assess how the reasoning expressed by the Victorian Court of Appeal might be relevant to the application of similar provisions elsewhere. For example:
- Under the Queensland landholder rules, a person is a ‘related person’ of another person if the persons acquire interests in a landholder and the acquisitions form, evidence, give effect to or arise from what is substantially one arrangement.
- Under the New South Wales landholder rules, a person can make a relevant acquisition if ‘the person acquires an interest in a landholder that (when aggregated with other interests in the landholder acquired by the person or other persons under acquisitions that form, evidence, give effect to or arise from what is substantially one arrangement between the acquirers) results in an aggregation that amounts to a significant interest in the landholder.
It is unclear at this stage whether the taxpayer will appeal the decision.
For private unit trusts the threshold is 20%.
The Act, s 3(1) (definition of ‘associated transaction’ para (b)).
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