The Alert raises the ATO’s concerns about certain property development management agreements. These typical arrangements are used by taxpayers to segregate the development risks from the land-owning entity. TA 2026/1 is another instance of the ATO seeking to apply Part IVA which is a significant development that will have a broad impact across many property developers.

Characteristics of arrangements under review

Those property development arrangements under review, typically involve:

The ATO has concerns that the arrangements are contrived to artificially separate land ownership and development activities to gain a tax timing advantage, being:

• upfront deductions in Dev Co that would not be available to the landowner
• the repeated deferral of income recognition.

The ATO has a specific concern that the repeated utilisation of development losses can result in the economic group perpetually deferring paying tax on group profits and enabling wealth extraction.

The ATO has indicated that Part IVA anti-avoidance provisions may apply to these types of arrangements.

ATO actions

The ATO has confirmed that they will:

• publish a Practical Compliance Guideline outlining a risk framework
• engage with taxpayers that are undertaking these types of arrangements.

How SW can help

TA 2026/1 is another example of the ATO seeking to apply Part IVA to a once typical arrangement. This is a common structure used by taxpayers to segregate the development risks from the land-owning entity. Whilst we have been aware of rumblings in this area from the ATO, this is a significant development that will have a broad impact across many property developers.

SW will provide more detail once the draft Practical Compliance Guideline is released and will discuss TA 2026/1 with any impacted clients.

Our experts can assist with advising how TA 2026/1 affects your existing arrangements. We can also engage with the ATO to deal with potential disputes.

Reach out to your SW advisor for support from our team.

The post Developing trouble: ATO Alert on related party development management agreements appeared first on SW Accountants & Advisors.

Queensland introduced the Additional Foreign Acquirer Duty (AFAD) in 2016 and the Foreign Land Tax Surcharge (FLTS) in 2019 to curb speculative foreign acquisitions. While these measures were designed to protect local buyers, they inadvertently captured Australian developers using international funding, creating a prohibitive tax environment that delayed projects and discouraged investment.

Since 2016, twelve new or increased property taxes have been introduced, impacting Queensland’s competitiveness. The latest reforms aim to address these issues by reducing compliance barriers, clarifying eligibility criteria, and introducing faster approval processes, signalling a shift towards a more investment-friendly framework.

Key changes announced

Dwelling threshold reduced

One of the most significant changes is the reduction of the dwelling threshold for relief eligibility from 50 dwellings to 20 dwellings. Previously, only large-scale residential projects could access AFAD and FLTS relief, leaving mid-sized developments exposed to additional costs.

By lowering the threshold, the government has opened the door for smaller projects, such as townhouse complexes and boutique apartment developments, to qualify for relief. This change is expected to stimulate housing supply and encourage more diverse development across Queensland.

Pre-approval process

The introduction of a pre-approval process marks a major improvement in how relief is administered. Under the old system, developers could only apply for relief after acquiring land, creating uncertainty and financial risk. The new process allows developers to secure approval before acquisition, giving them confidence to proceed with transactions and improving access to finance. This proactive approach reduces risk and supports better project planning.

Published service standards

To complement the pre-approval process, the Queensland Revenue Office (QRO) has introduced published service standards for processing applications. Frequent applicants and renewals will be processed within 30 working days, while new applicants will receive decisions within 60 working days. These timelines provide transparency and predictability, addressing long-standing concerns about delays and improving investor confidence.

Broader recognition of group entities

The reforms also broaden eligibility by recognising the activity of the relevant corporate group of which the entity is a group entity in determining if the entity has made a significant contribution or is a significant contributor. Many projects involve joint ventures or complex corporate arrangements, and under the new rules, these structures will be considered when determining if the exemption criteria is satisfied.

Five year averaged significant contributor test

For landholders seeking relief from the FLTS, a new five-year averaged significant contributor test has been introduced. This test ensures that entities demonstrating sustained economic contribution to Queensland can access relief, rewarding long-term investment rather than short-term activity. It encourages stability and ongoing engagement with the state’s economy.

Under this administrative arrangement, a significant contribution means that an entity (or relevant corporate group) has:

• Current commercial activities, or committed future commercial activities over a 12-month period from the liability date, at the requisite contribution level or
• Commercial activities approved by the Commissioner.

In this context, requisite contribution level means employing 75 or more full-time equivalent employees in Queensland (excluding labour hire or contractors) or incurring expenditure in Queensland of more than $20 million annually (comprising Queensland payroll tax and land tax liabilities, Queensland goods and services and wages paid to Queensland residents).

In relation to commercial activities approved by the Commissioner, the Commissioner will have regard to:

• the commercial activity in the context of population size, demographics, and industry maturity in the area
• the nature of the area and/or industry
• the contribution the activity makes to the area and/or industry (for example, whether the entity is a major employer in the area or whether the industry would exist without the presence of the entity) and
• any other relevant factors.

Clearer criteria and transitional arrangements

Finally, the reforms provide clearer eligibility criteria and transitional arrangements for entities already receiving relief. This removes ambiguity and ensures continuity for ongoing projects, reducing compliance risk and supporting developers during the transition to the new framework.

Rulings

To implement these reforms, the QRO has issued the following updated rulings:

• Public Ruling GEN012.1 Administrative arrangement—exemption from AFAD and land tax foreign surcharge for residential land developers
• Public Ruling LTA000.6.1 Administrative arrangement—exemption from land tax foreign surcharge for landholders undertaking commercial activities that make a significant contribution
• Public Ruling DA000.15.5 Additional foreign acquirer duty—ex gratia for significant development for liabilities arising before 15 December 2025
• Public Ruling LTA000.4.4 Guidelines for ex gratia relief from the land tax foreign surcharge for liabilities arising before 30 June 2026

How SW can help

Navigating these new rules can be complex, especially with multiple rulings and transitional arrangements.

We assist developers and investors by:

• Providing tailored advice on eligibility under the new AFAD and FLTS relief framework.
• Preparing and lodging pre-approval applications with QRO to secure relief before acquisition.
• Structuring projects and ownership arrangements to maximise compliance and minimise tax exposure.

Contributors

Robert Parker – Consulting Director, Tax

Blake Trad – Consultant, Tax

The post QLD Foreign Tax Reforms: Merry Xmas for Queensland Developers appeared first on SW Accountants & Advisors.

With the rulings to take effect from 1 July 2025, the Victorian SRO issued draft revenue ruling DA-067 and final versions of revenue rulings DA-065 and DA-066 which consider the treatment of economic entitlements under the Duties Act 2000 (Vic) (Duties Act).  

Economic entitlements  

Under the Duties Act, an economic entitlement arises when a person gains access to the economic benefits of land such as income, capital growth, or sale proceeds, without acquiring ownership. These provisions are designed to capture arrangements that are economically equivalent to land ownership but fall outside traditional dutiable transactions. 

This includes complex commercial arrangements, such as profit-sharing agreements, development partnerships, and certain retirement village structures.

Draft DA-067: Economic entitlements – key concepts and interpretation 

Draft DA-067 aims to clarify key concepts and interpretations surrounding economic entitlements, particularly where arrangements do not involve a direct transfer of land but still confer financial benefits tied to land ownership. This draft ruling addresses longstanding industry concerns about the breadth and ambiguity of the provisions, particularly in property development and investment arrangements. 

DA-067 outlines the Commissioner’s interpretation of key concepts that are relevant to the economic entitlement regime. These have been summarised below. 

“Arrangement” 

The word ‘arrangement’ is not defined in the Act but has been interpreted in various ways in different statutory contexts. In the current context, the Commissioner will not consider an arrangement to have been made unless there is at least one binding agreement. An arrangement in this context is not used to capture matters that are merely a proposed course of action. 

“Is or will be entitled to” 

This phrase incorporates an element of futurity about when a person will be entitled to participate or receive an amount under an arrangement. It includes both current and future rights to receive a benefit under an arrangement. It includes direct and indirect entitlements, whether the person is actively involved or passively entitled.  

“To participate in” 

This is outlined to mean having a right to share in the economic benefits of the land, such as income, rents, profits, capital growth or proceeds from sale of the land. 

“Directly or through another person” 

This phrase is intended to ‘look through’ participation by a trustee or nominee acting for or on behalf of another person or beneficiary. 

DA-067 has been subject to consultation and is expected to be issued in due course. 

DA-065: Acquisition of economic entitlements via service fees

DA-065 focuses on when a service fee arrangement may be deemed to confer an economic entitlement, thereby triggering land transfer duty under part 4B of Chapter 2 of the Duties Act. 

The economic entitlement provisions provide that a person acquires an economic entitlement if an arrangement is made in relation to land (with an unencumbered value exceeding $1 million) under which a person is or will be entitled to any of the following: 

• 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. 

DA-065 provides that in considering whether a service fee amounts to an economic entitlement, the Commissioner will consider the following factors: 

• the nature and scale of the arrangement, including the rights, obligations, risk allocation, and responsibilities of the parties to the arrangement. The assumption by a service provider of economic risks associated with the ownership and/or development of land generally indicates that this type of service fee will amount to an economic entitlement.  

• the nature and magnitude of the service fee, including whether the substance of the fee is remuneration for identifiable services. For example, the percentage used to calculate the fee is at market rates and the structure of the fee is similar to ordinary fees chargeable by a comparable service provider as remuneration for the identified services. The larger the percentage of an economic benefit of land used to calculate the service fee, the more indicative the service fee will amount to an economic entitlement. 

• the nature of the service provider, including whether the service provider ordinarily provides the identified services to third-party recipients within the course of its business. 

Examples where the Commissioner wouldn’t consider a service fee to be an economic entitlement include:  

• real estate agents commission which are determined by rents or proceeds of sale   

• project managers fees which are determined by reference to the proceeds of sale or capital growth of land in exchange for providing project management services to a landowner 

• trustees, fund managers, asset managers, and investment managers fees that are determined by reference to the proceeds of sale, rents, profits or capital growth of land under management of the fund.  

Retirement villages  

DA-065 considers specific circumstances in relation to arrangements involving retirement villages. 

Under lease or licence arrangements in retirement villages, a retiree’s right to reside and share in the proceeds from the first resale of their unit is not considered an economic entitlement under Part 4B of the Duties Act, as it is part of their existing lease/licence (which is generally not dutiable). However, this exemption only applies to the first resale, meaning that if the retiree has rights to proceeds from multiple resales, it may be treated as an economic entitlement. 

Similarly, payments made by outgoing residents to the retirement village owner are not considered economic entitlements, since the owner already holds full beneficial ownership of the land. 

In contrast, non-owners, such as operators who have a right to share in the proceeds of unit sales, are considered to be acquiring an economic entitlement, which must be disclosed to the Commissioner. 

DA-066: Calculation of economic entitlements  

DA-066 acts as the companion ruling to DA-065 and provides guidance on how to calculate the percentage of beneficial ownership of land taken to be acquired under an economic entitlement. 

Percentage of beneficial ownership 

Where a person acquires an economic entitlement, the percentage of beneficial ownership of land taken to be acquired will be the total of all the entitlements that the person (or associated persons) is or will be entitled to receive or acquire at the time the arrangement is entered into.  

As mentioned above, the relevant entitlements are:  

• 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. 

If an arrangement grants a person only one of the above entitlements, clearly defined by a particular percentage, and no additional payments are made to that person or any associated party, the percentage of beneficial ownership deemed to be acquired will be equal to that stated percentage. 

Deeming provision 

DA-066 also provides a deeming provision that operates to deem the beneficial ownership taken to be acquired to be 100% where the arrangement is entered into: 

• does not specify the percentage of the entitlement that the person is or will be entitled to receive or acquire 

• in addition to specifying a percentage of the economic entitlement, also includes any other economic entitlement, or amount payable to, the person or an associated person or 

• entitles the person or an associated person to 2 or more of the entitlements referred to in section 32XC(1)(b) of the Duties Act. 

The deeming provision is subject to the Commissioner’s exercise of discretion, which allows the Commissioner to determine a percentage less than 100% if it is appropriate in the circumstances. 

When deciding whether to exercise discretion, the Commissioner will consider all relevant circumstances, including the total economic entitlements held by the person and their associates at the time the arrangement was made. 

If the person accurately identifies and quantifies all economic entitlements as less than 100%, the Commissioner may reduce the deemed beneficial ownership from 100% to the actual percentage of entitlements acquired. 

Calculation 

Once the percentage of beneficial ownership is established, duty is assessed based on that percentage of the land’s unencumbered value at the time the economic entitlement is acquired, not when the associated benefits are eventually received. If the land’s unencumbered value falls between $1 million and $2 million, the duty is gradually phased in using the following formula: 

[(A – $1,000,000)/$1,000,000] x B 

Where: 

• A is the unencumbered value of the relevant land and 

• B is the duty that, apart from this section, would be chargeable on the acquisition of the economic entitlement. 

How SW can help 

These rulings provide greater clarity for developers, investors, and retirement village operators, ensuring compliance with duty obligations and reducing ambiguity around complex land-related arrangements. 

Stakeholders should review existing and future arrangements considering the new rulings to ensure compliance and mitigate any risks for duty being imposed. 

Please reach out to our dedicated tax specialists to help you interpret the changes, assess your exposure, and ensure your arrangements remain compliant. 

Contributors

Rob Parker

William Zhang

The post Victorian State Revenue Office clarifies land transfer duty on economic entitlements   appeared first on SW Accountants & Advisors.

For the eighth year, we are delivering an interactive 5-part seminar series to aspiring and emerging leaders in the Property and Real Estate Credit Funds Management sectors, with direct access to leading industry experts and their experience, strategic industry insights and pitfalls, and key issues ranging from structuring, debt and equity through to legal and compliance.

Facilitated by our property funds specialists, featuring content developed alongside industry, each session featured practical working considerations and discussions with market leaders.

Series speakers

Industry speakers

• David Omond | KM Property Funds
• Charlie Renney | Hall & Wilcox
• Greg Sugars | Preston Rowe Paterson
• Bruce Corrin | CDC Property Consultancy
• Tim Slattery | ASA Real Estate Partners
• Adam Murchie | Forza Capital
• Georgia Liu | CBA
• Kevin Said | AUS Finance Group

SW speakers

Simon Tucker
Director, Tax 
SW

Rami Eltchelebi
Partner, Assurance and Advisory Services
SW 

Stephen O’Flynn
Director, Tax
SW

Abi Chellapen
Director, Tax 
SW

Sejla Kadric
Director, Business & Private Client Advisory 
SW

Luke Fernandes
Director, Tax
SW

Shaneel Kumar
Associate Director, Corporate Finance
SW

James Serpell
Associate Director, Assurance and Advisory Services 
SW

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

The post Emerging Property Fund Managers’ Series appeared first on SW Accountants & Advisors.

This guide provides a clear, side-by-side comparison of BTR definitions, tax concessions, and access requirements across all Australian jurisdictions. If you’re planning a BTR project or need help navigating the rules, get in touch with our property tax experts for tailored advice and strategic support.

How can SW help?

We have helped clients navigate the complexities of the BTR scheme and determine their eligibility requirements. As specialists in property funds and property development, we provide strategic tax advice to support the success of your project.

The post Build to Rent | State Taxes comparison appeared first on SW Accountants & Advisors.

The 2024 Emerging Property Fund Managers series has now concluded. To register your interest for the next series, which will be announced in the coming months, please email marketing@sw-au.com.

For the seventh year, we delivered an interactive 5-part seminar series to aspiring and emerging leaders in the Property Fund Management sector, with direct access to leading industry experts and their experience, strategic industry insights and pitfalls, and key issues ranging from structuring, debt and equity through to legal and compliance.

Facilitated by our property funds specialists, featuring content developed alongside industry, each session featured practical working considerations and discussions with market leaders.

Series speakers

Industry speakers

• Howard Brenchley | APN Property Group
• David Omond | KM Property Funds
• Nick Klein | CyberCX
• Melissa Kingham | Haben Property Fund
• Chris Langford | Newmark Capital
• Emma Donaghue | Hall & Wilcox
• Georgia Liu | Commonwealth Bank of Australia

SW speakers

Simon Tucker
Director, Tax 
SW

Rami Eltchelebi
Partner, Assurance and Advisory Services
SW 

Stephen O’Flynn
Director, Tax
SW

Abi Chellapen
Director, Tax 
SW

Sejla Kadric
Director, Business & Private Client Advisory 
SW

Danny Armstrong
Director, Banking & International Business
SW

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

The post Emerging Property Fund Managers series 2024 appeared first on SW Accountants & Advisors.

The recent Administrative Appeals Tribunal (AAT) case Meakins and Commissioner of Taxation [2023] AATA 3852 (Meakins), highlights its significance in the context of tax deductions for holding vacant land in Australia. The key tribunal findings emphasise the importance of several critical factors including assessment of income-generating intent, the lack of substantial activity and implications of inaction. The ruling reinforces that expenses related to vacant land are not typically deductible unless the land is used for income-generating purposes. 

Background

The taxpayer purchased vacant land at North Fremantle in 2006. Initially, there was a clear intent to develop this land, transforming it into an income-generating asset.

Despite these initial plans, the development of the property did not proceed but the taxpayer continued to claim deductions for holding costs. The taxpayer attributed this inaction to changing economic circumstances that affected the ability to move forward with the development. As the years passed, these circumstances, combined with other unforeseen challenges, led to the property remaining largely undeveloped and unused.

This lack of tangible development activity raised significant questions from the tax authorities about the legitimacy of the tax deductions claimed for holding the property. The AAT agreed with the Commissioner that the interest expenses were not deductible.

Key issues and tribunal findings

The tribunal’s decision hinged on several critical factors:

• Assessment of income-generating intent: A pivotal aspect of the tribunal’s decision was assessing the taxpayer’s intent for income generation. The tribunal scrutinised the nature of expenses incurred, investigating whether they were legitimately aimed at producing assessable income or were merely veiled as part of a business operation. This scrutiny was crucial, as tax law requires a direct link between the expense and the income-producing activity. This case highlights that taxpayers must demonstrate a clear and direct connection between the expenditure on vacant land and their efforts to generate assessable income, such as active steps towards development or concrete plans for business use.

• Lack of substantial activity: The tribunal expressed significant concerns over the absence of meaningful development or use of the property for income generation over 17 years. This prolonged period of inactivity was a key factor in casting doubt on the legitimacy of the claimed deductions. The case underscores the importance of active engagement and development efforts in property investment to substantiate claims for tax deductions. The tribunal’s focus was not just on the intent to generate income but also on the tangible actions taken towards this objective. This serves as a reminder that mere ownership of property, without substantial and active efforts towards its income-producing use, is insufficient to justify tax deductions for holding expenses.

• Implications of inaction: The extended period of inaction raised significant questions about the trust’s true intent behind holding the land. The tribunal examined the absence of concrete actions towards developing or using the property for income generation, contrasting this with the claim for deductions. This inaction was seen as indicative of a lack of serious commitment to using the property for income-producing purposes.

This highlights that in the realm of tax law, intentions must be backed by actions. Taxpayers must be mindful that inactivity or lack of substantial effort in developing or using their property can undermine their claims for tax deductions and invite scrutiny from tax authorities.

Implications for taxpayers

The Meakins case echoes the sentiments expressed in ATO Ruling TR 2023/3, particularly regarding the deductibility of expenses for vacant land. The ruling emphasises that expenses related to vacant land are not typically deductible unless the land is used for income-generating purposes. 

Whilst the case addresses an interest deduction claimed before the introduction of Section 26-102, the decision serves as a crucial reminder for taxpayers holding vacant land (where deductions can still be obtained) for the need of a clear demonstration of income-generating intent and activity when claiming deductions on vacant land. Taxpayers must ensure that their investment strategies align with tax laws to avoid disputes and penalties.

Actions required

• Review current holdings:
  • Assessment of vacant land holdings: Conduct a thorough review of your current vacant land holdings. Assess each property, taking into consideration the Meakins case and the ATO Ruling TR 2023/3, to understand how these legal precedents impact your ability to claim deductions.
  • Analysis of development plans: For each holding, evaluate the status of any development plans or activities. This includes reviewing timelines, actions taken, and any delays or changes in plans.
• Documentation: Having detailed and organised records that clearly demonstrate the purpose and use of the land is always useful.

Keeping abreast of these rules and seeking professional advice can save both time and money, helping to avoid potential pitfalls down the line. 

Get in touch with SW

Our expert team here at SW is here to guide you every step of the way. Please reach out if you need support or have any questions.

Contributors

Rahul Sanghani

The post Navigating tax implications of holding vacant land appeared first on SW Accountants & Advisors.

The interactive face to face event was hosted by SW property expert, Sejla Kadric, and Director, Greg Will, and opened the floor to questions after our speakers shared valuable insights into structuring, financing and managing your developments during, and as we leave, a recession.

Join us for lunch before hearing from expert developer from Monno, Dean Fossey, Charter Keck Kramer MD Bennett Wulff, and Daniel Sollorz, Senior Director at CBRE.

Event Details

Date

Tuesday 2 May 2023

Location

SW Sydney Office, Level 7, Aurora Place, 88 Phillip Street

Time

12.30pm for a light lunch, seminar 12.45pm – 2pm

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

SW hosts

Gregory Will

Director, Business & Private Client Advisory

SW

Sejla Kadric

Director, Business & Private Client Advisory

SW

Guest speakers

Dean Fossey

Director

Monno Pty Ltd

Bennett Wulff

Managing Director | NSW

Charter Keck Cramer

The post Developing out of a recession | Property development seminar 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

The post Land transfer duty – Acquisition of economic entitlements in relation to land (service fees) appeared first on SW Accountants & Advisors.

For the sixth year, we deliver an interactive 5-part seminar series to aspiring and emerging leaders in the Property Fund Management sector, with direct access to leading industry experts and their experience, strategic industry insights and pitfalls, and key issues ranging from structuring, debt and equity through to legal and compliance.

Facilitated by our property funds specialists, featuring content developed alongside industry, each session features practical working considerations and discussions with market leaders.

Series speakers

Industry speakers

• David Southon | Aliro Group
• Howard Brenchley | APN Property Group
• David Omond | KM Property Funds
• Chris Langford | Newmark Capital
• Emma Donaghue | McMahon Clarke
• Georgia Liu | Commonwealth Bank of Australia

SW speakers

Simon Tucker
Director, Tax 
SW

Rami Eltchelebi
Partner, Assurance and Advisory Services
SW 

Stephen O’Flynn
Director, Tax
SW

Abi Chellapen
Director, Tax 
SW

Sejla Kadric
Director, Business & Private Client Advisory 
SW

Matthew Schofield
Director, Corporate Finance
SW

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

The post Emerging Property Fund Managers series 2022 appeared first on SW Accountants & Advisors.