Brickx and landholder duty / trust duty

The Brickx PDS has an interesting section on certain types of stamp duty that may be applicable to dealings with the trusts that own the properties Brickx holds.

From what I understand - there are potential stamp duty implications if you and your family each invest in the same property up to the maximum holding.

For example, if you purchase the maximum of 5% in one property, and your parents / spouse / siblings / etc each purchase the maximum 5% in the same property, so that you effectively own more than 20% in Victoria or 50% in other states other than South Australia ... and you did so "in concert" ... then there may be stamp duty issue in relation to any dealing with the underlying trust?

Perhaps our resident accountants can explain any potential issues here and how this works.

From: https://www.brickx.com/pds (pages 49-51)

On the basis that marketable security transfer stamp duty was abolished, effective from 1 July 2016, in New South Wales (as the only Australian jurisdiction to continue to impose such duty), any transfer of Bricks will not be subject to any marketable security transfer duty.

However, a transfer or any other dealing in Bricks (including any additional issue, redemption or cancellation) may be subject to other heads of stamp duty, namely:

• landholder duty (or its equivalent) in each Australian jurisdiction other than Queensland and South Australia;
• trust acquisition/surrender duty in Queensland; and
• private unit trust duty in South Australia.

These stamp duty implications of a dealing in Bricks depend upon a number of factors, including the value and location of the property of the relevant BRICKX Trust, the change in Brick Holding percentage(s) of the affected Brick Holder(s), and whether the Brick Holder is an existing Brick Holder, or is related to or associated with other Brick Holders, or acquired their Bricks under “substantially the same arrangement” as any other Brick Holders.

It is currently contemplated that each trust deed for a BRICKX Trust will contain the following provision:

“Other than the initial Brick Holder, no Brick Holder either alone or with any of its Affiliates or Associates shall be permitted to hold more Bricks than the maximum number determined by the Trustee from time to time in its absolute discretion (Maximum Holding),”
​

On the basis that the initial Brick Holder will be issued with Bricks at a time when the relevant BRICKX Trust does not own any property, no stamp duty will arise in respect of that initial issue of Bricks.

As at the date of this Document, the “Maximum Holding” being the maximum number of Bricks a Brick Holder can currently hold in any single BRICKX Trust is 5% of the total issued Bricks, or 500 Bricks of that BRICKX Trust.

Landholder Duty (New South Wales, Australian Capital Territory, Western Australia, Tasmania, the Northern Territory and Victoria)

The current definition and stipulation of “Maximum Holding” means that unless the “aggregation rules” in the landholder duty provisions apply, any dealing in Bricks (including the additional issue, transfer, redemption or cancellation) will not be subject to any landholder duty in the Australian jurisdictions which impose this head of stamp duty.
This is because the holding of Bricks of less than a “significant interest” of the total issued Bricks of a single BRICKX Trust will not be subject to any landholder duty (assuming that the other requirements for the imposition of such duty are satisfied). In summary, a “significant interest” for a private unit trust in the Australian jurisdictions which impose landholder duty is as follows:

• 50% or more in New South Wales, Australian Capital Territory, Western Australia, Tasmania and the Northern Territory; and
• 20% or more in Victoria.

In summary, in determining whether or not a Brick Holder holds a “significant interest” in any BRICKX Trust, the following holding of Bricks must also be taken into account and aggregated with that Brick Holder’s holding of Bricks:

• any Bricks held by its “associates”, “associated persons” and/or “related persons” (as defined in the relevant stamp duty laws); and
• any Bricks held by any other Brick Holder (regardless of relationship) in that BRICKX Trust that were acquired pursuant to what is “substantially one arrangement”. Generally, this requires that those Brick Holders acted in concert in acquiring their Bricks.

For example, under the New South Wales stamp duty laws, natural persons are
“associated” or “related persons” if:

• they are partners in a partnership to which the Partnership Act 1892 (NSW) applies;
• one is the spouse or de facto partner of the other;
• one is the parent, brother or sister of the other; and/or
• one is the spouse, or de facto partner, of a parent, child, brother or sister of the other.

Similar definitions apply in the other relevant landholder duty jurisdictions.

Despite any contrary stamp duty laws, any landholder duty liability will be borne by the relevant Brick Holder, or if the liability arises because of the aggregation provisions, the relevant Brick Holders jointly and severally. Any landholder duty liability will be calculated at the approximate rate of up to 5.5% of the market value of the property of the BRICKX Trust that is represented by the dutiable dealing in Bricks.

Trust Acquisition/Surrender Duty (Queensland)

Any dealing in Bricks (including any additional issue, transfer, redemption or cancellation) in a BRICKX Trust that owns any property located in Queensland will be subject to trust acquisition/surrender duty in that State. This is because the application of the trust acquisition/surrender duty provisions in Queensland do not depend upon a Brick Holder holding a certain minimum number of Bricks.

In general, the trust acquisition/surrender duty liability will be calculated at the approximate rate of up to 5.75% on the greater of the consideration for the dealing in the Bricks and the market value of the property of the BRICKX Trust that is represented by that dealing.

Despite the contrary stamp duty laws, any trust acquisition/surrender duty liability will be
borne by the relevant Brick Holder.

Private Unit Trust Duty (South Australia)

Any dealing in Bricks in a BRICKX Trust that owns any property located in South Australia will be subject to private unit trust duty in that State. This is because the application of the private unit trust duty provisions in South Australia do not depend upon a Brick Holder holding a certain minimum number of Bricks.

In general, the private unit trust duty liability will be calculated at the approximate rate of up to 5.5% on the greater of the consideration for the dealing in the Bricks and the market value of the property of the BRICKX Trust that is represented by that dealing.

Despite the contrary stamp duty laws, any private unit trust duty liability will be borne by the relevant Brick Holder.​

 

What are the mechanisms people could use to try and circumvent these restrictions.

Obviously you can try and buy bricks in the names of all your family members - no doubt you could use company and trust structures to own them as well (whether that is cost effective is an entirely different question).

Are companies/trusts considered related entities for the purposes of these stamp duty / land tax / CGT / etc rules ?

Not that it matters that much, since you have virtually no control over the decision making anyway - the only scenario I can foresee this ever becoming something you'd want to do is if you want to try and force a sale of the property at the 5 year anniversary of settlement (which requires at least 50% effective control of the bricks in that property).

 

Can it? Is anyone currently offering finance to purchase bricks?

 

Well, one assumes there will still be land tax (depending on state / thresholds), but it will be internal to the trust rather than an external cost affecting your cashflow.