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

The post Supreme Court confirms landholder duty on appointment of director appeared first on SW Accountants & Advisors.

On 30 August 2022 the State Revenue Office of Victoria (SRO) released a draft Ruling on the operation of the economic entitlement provisions contained in the Duties Act 2000 (Vic).

Draft Ruling DA.065 Acquisition of economic entitlements in relation to land (service fees) formalises the guidance previously published on the SRO website in relation to arrangements potentially dutiable under these provisions.

Much of what was previously published is contained in the draft ruling, however the ruling does include some further examples. There is still some significant uncertainty as to the operation of the provisions and further clarity in some instances would be helpful prior the ruling being finalised. The SRO are accepting comments in relation to the draft ruling up until 28 September 2022.

Economic entitlement provisions

Broadly, the economic entitlement provisions will apply where there is an arrangement in relation to land (with an unencumbered value that exceeds $1,000,000) under which a person has an entitlement:

• to participate in the income, rents or profits derived from the land
• to participate in the capital growth of the land
• to participate in the proceeds of sale of the land
• to receive any amount determined by reference to any of the above matters
• to acquire any entitlement described above.

The provisions are broadly drafted and paragraph IV as it is currently worded has the potential to apply to any ‘fee’, ‘interest’ or other amount that is calculated by reference to the income, profits, rents or proceeds of sale derived from the development of the land.

The draft ruling highlights the intention of the provisions to impose duty on arrangements where a person, without acquiring an ownership interest in land, effectively obtains rights and benefits relating to the land that are economically equivalent to ownership interests. Labelling an amount as a ‘fee’ or ‘interest’, or something else, will not avoid the economic entitlement provisions if they otherwise apply

Outcome of draft ruling

The information previously published on the SRO website broadly details situations and examples which may commonly arise with respect to land dealings and provides guidance on whether the economic entitlement provisions would apply.

The draft Ruling builds on this guidance and considers two issues:

• whether ordinary fees for service may amount to an economic entitlement; and
• circumstances where an acquisition of a share or unit may amount to an economic entitlement despite not attracting landholder duty.

Fee for Service

The draft Ruling states that fees may be tied to the proceeds associated with land and/or its development but not amount to an economic entitlement. This is the case where third party service providers receive ‘genuine industry fees’ for service.

Examples include:

• real estate agents, including executors and trustees of deceased estates – whose fees are based on the proceeds of sale of land
• architects – whose fees can include a percentage of building costs
• project managers – whose fees can include a percentage of project value. Payment of the fees cannot be contingent on / calculated by reference to the performance of the project/development
• planning consultants – whose fees can include a percentage of the value uplift after a precinct structure plan is obtained
• private advisory firms – that may receive a contingency fee for assisting a landowner to take their land to market or negotiate transaction documents
• lenders and financiers – who receive interest for providing finance to a development. The interest/fee cannot be tied to the performance of the development. An example of such an arrangement is a standard loan facility with interest at market rates.

The Ruling follows on to provide that there is no need to lodge or pay duty where a person provides a ‘genuine’ service in relation to land and:

• is normally engaged in a full-time capacity in providing those services
• the agreed fee/rate is within industry parameters, and
• the person is unconnected (i.e. not an associated person) to any other person who has an economic entitlement in relation to the land.

Limitations of the ruling

Whilst the examples provided have been included to avoid confusion, it is our view that more clarity is still required as the ruling does not articulate the principles which are being applied by the Commissioner in the examples.

In some examples the conclusion is that the fee is not an economic entitlement, however it is not clear whether this is because those examples actually fall outside the definition of an economic entitlement in the first place. For example, an architect who charges fees on a percentage of building costs does not actually acquire any entitlement to participate in the income, rent or profits derived from the land. Similarly, financiers who are entitled to interest calculated on the loan advanced do not have an entitlement to participate in the income, rent or profits derived from the land. In these circumstances, it is irrelevant whether the fees are “genuine” and within “industry parameters”.

In addition, the draft Ruling provides no guidance as to what are ‘genuine’ fees or whether a ‘fee/rate is within industry parameters’. Industry parameters cover a broad range and depend upon multiple factors.

Acquisition of a share or unit.

The draft Ruling states that:

The economic entitlement provisions contained in Chapter 2 of the Act can also apply to acquisitions of shares in companies and units in unit trust schemes that may be outside the scope of the landholder provisions in Chapter 3 of the Act. As a result, a liability may arise under Chapter 2 where no liability would arise under Chapter 3 because the interest acquired is below the relevant acquisition threshold. However, this would only occur where the acquisition of units, shares or other security interests entitle the holder to participate in the income, rents or profits, capital growth or proceeds of sale from particular land held by the entity.

The ruling provides an example where specific classes of units might be dutiable under the economic entitlement provisions, although not dutiable under the landholder provisions (as the interest acquired is below the relevant acquisition threshold). The ruling states that the economic entitlement provisions would only apply where the shareholder/unitholder is entitled to participate in the income, rents or profits, capital growth or proceeds of sale from particular land held by the entity. Where shareholders/unitholders are entitled to income/proceeds etc. that are general in nature and not specific to a particular land held by the entity, the economic entitlement provisions would not apply.

The example provided in the ruling is somewhat artificial as it involves the creation of a new class of units issued to a potential investor who wants to acquire one of the shopping centres (Property A) held in the Trust, but not through a conventional purchase. The new class of units entitles the investor to 100% of the new income, rents and profits associated with one of the properties and entitlement to the trust’s property upon wind up to the extent that the value of Property A bears to the total value of both properties.

It is our view that the anti-avoidance provisions contained in the landholder provisions should apply to such arrangements. The economic entitlement provisions should have no application to the issue of units and shares. Although the rights to dividends and capital of a particular class or units or share may be determined by reference to returns from a particular property or a particular pool of assets, the dividend or capital payments are not an entitlement to participate in the income, rent or profits derived from the land or capital growth (except in very unique circumstances).

How we can help

Whilst the ruling somewhat builds on the previous information published on the SRO website, it still does not provide the guidance needed by the property industry to understand what arrangements would be captured by the economic entitlement provisions. This unfortunately means that taxpayers seeking certainty will need to seek a private ruling from the SRO.

SW is currently involved in a number of submissions, so please reach out to the team if you have questions, comments or feedback.

Contributors

Robert Parker, Consulting Director, Tax

Carmelin De Francesco, Senior Manager, Tax

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