In Tao v Commissioner of State Revenue [2025] VSC 831, the Court held that becoming the sole director and shareholder of a corporate trustee constituted control of the trust itself, exposing the acquirer to landholder duty.

As the first Victorian Supreme Court decision to interpret section 82, the case highlights the provision’s broad reach and serves as a warning that even administrative changes can carry significant tax consequences.

Background of the VCAT decision

The WCT Unit Trust owned a Victorian development property valued at over $1m, making it a landholder under the Duties Act. Its corporate trustee was 66 William Road Pty Ltd. The trust units were held as follows:

• 50 units by Maclaw No. 547 Pty Ltd, as trustee for the Mountain Highway Unit Trust.
• 25 units by Fredco Incorporated Limited, as trustee for Nomsec No. 1 Limited.
• 25 units by Amber Investments Pty Ltd, in which Mr Tao was a majority shareholder.

In 2014, Mr Tao bought four shares in the trustee company 66 William Road Pty Ltd, becoming its sole shareholder. By March of that year, he had also appointed himself as the company’s sole director and secretary. More than five years later, the Commissioner issued a notice assessing duty of roughly $199,650, plus penalties and interest.

The Commissioner’s assessment treated Mr Tao’s assumption of control of the trustee as a ‘relevant acquisition’ of the WCT Unit Trust under section 82 of the Duties Act. The assessment was based solely on his control of the trustee company, even though neither Mr Tao nor Amber Investments Pty Ltd had acquired any additional units in the WCT Unit Trust.

Legal issues

Landholder duty is imposed when a person makes a ‘relevant acquisition’ of an interest in a landholding entity, such as a company or unit trust owning Victorian land worth $1m or more. Typically, this covers acquisitions of significant shareholdings or unit holdings. Section 82, however, is a broad provision that extends to changes in control that do not involve the direct acquisition of an interest.

In essence, section 82(1) provides that if a person ‘acquires control’ of a private landholder by means other than a direct acquisition of an interest, they are deemed to have made a relevant acquisition of 100% of the landholder, or a lesser percentage as determined by the Commissioner.

Section 82(2) defines ‘acquiring control’ as obtaining the capacity to determine or influence the outcome of the landholder’s financial and operating decisions. It makes clear that practical influence, beyond strict legal rights, and the parties’ conduct and behaviour must be considered in assessing control. This broad definition means a person can control a landholding entity without owning it, provided they effectively determine or influence key decisions.

The Supreme Court decision

Mr Tao challenged the Victorian Civil and Administrative Tribunal (VCAT) decision in the Supreme Court of Victoria, seeking leave to appeal.

One ground of appeal was that VCAT failed to treat section 82 as a two-stage test: first, determining whether control has been acquired; and second, if so, exercising the Commissioner’s discretion to deem the acquisition to be less than a 100%. The Court rejected this argument, finding that the VCAT had, in fact, identified Mr Tao’s acquisition of practical control of the WCT Unit Trust through his appointment as sole director and shareholder of the trustee company, and then considered whether to reduce the default 100% deemed acquisition.

VCAT reduced the deemed acquisition to 85% to reflect Mr Tao’s existing indirect interest held by Amber Investments Pty Ltd.

Mr Tao also argued that section 82 should be construed narrowly as an anti-avoidance provision, and that VCAT had misunderstood the purpose of the discretion in paragraph (b). Mr Tao contended that the discretion was intended to reflect the degree to which an effective beneficial interest had been acquired. The Court disagreed, confirming that section 82 is a distinct head of duty, not merely an anti-avoidance mechanism, and that it allows the Commissioner to deem a person to have acquired up to 100% of a landholder simply by acquiring control.

It was held that the discretion under section 82(1)(b) is directed at adjusting the default 100% acquisition where a taxpayer already holds an economic interest, as was the case with Mr Tao. VCAT’s decision to reduce the deemed acquisition to 85% was therefore a lawful and appropriate exercise of that discretion.

Mr Tao further contended that VCAT had ignored numerous factual matters, including the absence of any change in beneficial ownership and the rights of other unit holders. The Court held that these considerations were either raised for the first time on appeal or were irrelevant to the control test and that section 82 focuses on practical control rather than beneficial ownership. Therefore, arguments based on the distinction between legal and equitable interests, or the absence of share transfers, did not undermine the finding that Mr Tao had acquired control.

The Court found that VCAT had considered all factual matters put before it and had properly applied the discretion to reduce the deemed acquisition. As a result, the Court concluded there was no error of law and refused leave to appeal.

Key takeaways

• Taking control of a corporate trustee or landholding company, for example by becoming its sole director, can trigger landholder duty even if no trust units or shares change hands. Any restructure that concentrates decision-making power should be reviewed for duty implications.

• The Court observed that the ability to ‘influence’ may be something less than 50% control. The State Revenue Office website states that:

[Section 82] “can also apply to a person who is appointed to the board of directors of a landholder (or the corporate trustee of a landholder). Provided the shareholders or unit holders have not made arrangements that allow the director to benefit, or exercise rights which confer benefits similar to holding an interest in the landholder, the Commissioner will take the view that the director has not acquired control (and made a relevant acquisition of an interest of 100%) as a result of such an appointment.”

• In the Supreme Court, the Commissioner argued that this statement was intended to apply only to multi-director companies, including trustee companies, and not to companies with a sole director. However, given the Supreme Courts observation that ‘influence’ may arise with less than 50% control, the appointment of a director to a multi-director company could also, in some circumstances, trigger section 82.

• Section 82 is broad. The duty is not confined to anti-avoidance scenarios but operates as a standalone head of duty even where there is no relevant acquisition in the landholder. Consequently, acquisitions that are exempt under section 89D, such as the appointment of receivers, liquidators, executors or administrators, may nevertheless be liable for duty as an acquisition of control.

• The Commissioner’s discretion is limited. It is primarily directed at preventing double taxation of an existing economic interest, rather than operating as a general waiver of liability.

How SW can help

Navigating the nuances of landholder duty and trust structures can be complex. SW’s state taxes team is closely monitoring these developments. If you are contemplating changes to a trust’s structure or a corporate trustee, or if you suspect past changes may have inadvertently triggered a duty exposure, our team can help review your situation and manage any landholder duty risks.

Contributor

Robert Parker

Blake Trad

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In the 2020-21 Federal Budget, the Government announced an increase to the small business entity turnover threshold from $10m to $50m, allowing greater access to certain concessions including the shorter 2-year period of income tax assessment review. Broadly, this limits the Commissioner’s period to amend a return unless fraud or evasion occurred.

The Income Tax Assessment (1936 Act) Amendment (Period of Review) Regulations 2022 (the “Amending Regulations”) will amend the Income Tax Assessment (1936 Act) Regulation 2015 to exclude certain entities with “particularly complex tax affairs or significant international tax dealings” from the shortened 2-year period to a 4 year period.

The regulations were issued in draft form in August 2022 and the final version is largely unchanged, other than “providing more certainty to when the period of review would apply to entities that engaged in certain activities”.

SMEs excluded from shorter review period

Exceptions for certain taxpayers already existed that excluded entities from the 2 year review period, allowing the Commissioner to amend for 4-years after the notice of assessment is issued.

Arm’s length dealings

This exception has now been expanded to remove the requirement that one of the parties was already subject to the 4-year review period. It has also been expanded to apply – not just where the parties are not dealing at arm’s length – but also where:

• the transaction results in an amount of $200,000 or more being included in or allowable as a deduction of any of the parties, or
• the transaction involves CGT events where the sum of the proceeds from the CGT events is $200,00 or more.

Additional SMEs excluded from the 2-year review period

The list of SME exceptions to the 2-year period of review has been expanded to entities:

• where the sum of their foreign sourced assessable income, and that of their affiliates and associated entities is at least $200,000
• that are Australian foreign controlled or non-resident entities
• subject to the Diverted Profits Tax or Multinational Anti-Avoidance Law in the assessment year
• with at least 10 connected or affiliated entities
• that have claimed a Research and Development (R&D) tax offset for an income year or may be entitled to certain related deductions, recoupments, and adjustments
• that have claimed CGT relief under the following roll-over provisions:
  • Division 615 business restructure
  • Division 125 demerger
  • Subdivision 126-B companies in the same wholly owned group
• that have disregarded a capital gain/loss due to the operation of Division 855-10 (relating to foreign residents).

General tax assessment review rules

Subject to certain exceptions, the Commissioner may amend a tax assessment within 2 years of a notice of assessment for:

• an individual
• a company that is a small or medium business entity
• a person (in the capacity of a trustee of a trust estate) for a year of income if the trust is a small or medium business entity.

For other entities, the Commissioner may amend an assessment:

• within 4 years after the day on which notice of the assessment is provided to the taxpayer
• at any time if there has been fraud or evasion
• at any time to give effect to a decision on a review or appeal, or
• as a result of an objection made by the taxpayer or pending a review or appeal.

Date of effect

The amendments are now in operation, which means they apply to assessments for an income year if the assessment is made after 9 December 2022 and relates to income years starting on or after 1 July 2021.

How SW can help?

Reach out to your SW contact or the team here if you would like more information about how your tax assessment review period could be impacted.

Contributors

Tanya Bester

The post SMEs excluded from shorter Income Tax Assessment review appeared first on SW Accountants & Advisors.