Change to the ownership proportion/shares in company structure and stamp duty implication

Two families owns a property in Melbourne under a proprietary company with future plan to subdivide and build townhouses. Family A owns 80% share for borrowing capacity for initial purchase. Family B will have borrowing capacity once they sell other properties. Family B owns 20% of the shares and plan to increase proportion to 50% soon or at construction stage to help with borrowing for construction.

Does the change in share proportion will trigger stamp duty in Victoria?

 

It could. what is the unencumbered value of the land? If under $1mil there may be no duty.
Seek legal advice.

 

Thanks Terry, Value of the property is above 1 mil, any recommendations for legal firms in Melbourne for advise?

 

Why wouldn’t you just use Terry?

 

Thanks for the post Craig, but this is above my paygrade.

I would recomend HWL - ask for Vincent Licciardi

 

Thanks Terry

 

This is known as Landholder Duty. As Terry said, you may be liable to duty as the property is over $1mil. Also important to note that they will aggregate the value of ALL interests in land held by the company in which you’re acquiring the shares, and any of its subsidiaries. It also depends on historic shareholding’s of the acquirers in the company. Get advice from a lawyer who has specific experience in Landholder duty, it’s much more involved than regular stamp duty.

 

It's not called landholder duty. Stamp duty...is applied to some land rich situations. The company is assessed not shareholder. There are many factors but a company that owns land may have duty issues if share interests change. One for legal advice since it's not assured.

And for cgt consider a value shift also

 

The company will be classed as a 'landholder' under s71 of the Duties Act and any share transfer would generally attract duty, hence the SRO calls it Landholder Duty.
see
Landholder Duty | State Revenue Office.

 

Most definitely is Landholder Duty (see: Landholder Duty | State Revenue Office) and has been called that since 2012, prior to that it was called Land Rich duty.

Both the company and the acquirer of shares are jointly and severally liable if there is a duty implication, so all parties should be seeking advice.

 

That's a good news, If the share interest is 50% or less in a company then it doesn't attract duty. We are planning to keep 50% shares between two families, and down the track i will be the director of the company for construction loan.
What is a relevant acquisition?
A relevant acquisition is the acquisition of a significant interest or a further interest in a landholder. A significant interest:

• In respect of a private unit trust scheme, is an interest of 20 per cent or more.
• In respect of a private company or a wholesale unit trust scheme, is an interest of 50 per cent or more.
• In respect of a listed company or a public unit trust scheme, is an interest of 90 per cent or more.

A further interest is any interest acquired after a significant interest is acquired in any of the above landholders.

In respect of a private landholder, a relevant acquisition can also arise where a person acquires:

• 50 per cent or more of certain economic benefits or entitlements in respect of the landholder, and
• control over the landholder, being the capacity to determine or influence the outcome of decisions about the landholder's financial and operating policies.

 

Property settlement was in April 2020, Value remains unchanged. Is CGT applicable if value is same?

 

Incorrect. You are acquiring 50% of shares in the company, so it will attract duty (if it meets all the other criteria). The key is “50% or more”, not 50% or less. It’s also not that simple. Have there been any other share acquisitions in the company previously? These can be aggregated to the interest being acquired this time, and may account for a larger acquisition size. Are there associated parties involved? Those interests can be aggregated too. Seek legal advice from someone who understands landholder duty.

 

the disposal of shares in a CGT event so you will need to work out the cost base.

 

Myself and wife owns 20% of the company share and looking at increasing to 50%. I have to take careful steps to avoid heavy duty, will seek legal advice for the same. Thanks for your help to understand what i am dealing with.

 

Landholder duty – part 3 – the aggregation rules — Sladen Legal

Readings on Landholder duty explained with different scenarios

 

Assessed duty may be nil or minor where the value change is minor or nil. But a base or advalorem duty in lieu of assessed value duty in such cases g $200 / $500 could be a issue in some states. Its a question for a solicitor as part of any advice