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Stuart Courtney  
Senior Associate
Peter Fogarty  
Partner
T +61 3 9643 4127

Melbourne
Frank Brody  

09 June 2006

Queensland land rich duty changes

Changes to Queensland stamp duty

Land rich duty changes to take effect from 1 July 2006.

Under the Duties Act 2001 (QLD), a corporation is a land rich private corporation if 80% or more of its property, wherever located, comprises 80% or more of all of its property wherever located and the corporation is entitled, either directly or indirectly, to land in Queensland having an unencumbered market value of $1 million or more.

As part of the legislation introduced for the Queensland budget, this is going to change very soon to a 60% test but there will be no alteration to the $1 million threshold. There are no express transitional provisions in the legislation and so arguably the new rule will apply to liabilities which arise on or after 1 July 2006. However, there is a provision in the Queensland Duties Act which is unique to Queensland which states the date on which states the date on which a liability to land rich duty arises. In the case of a relevant acquisition which arises out of a sale transaction, the liability arises either on the entry into an agreement for the sale of the shares if, at that date, the target company is land rich or if the target company is not land rich as at the date when the agreement is signed but is land rich as at the date of the transfer, the liability arises at the date of the transfer. If the transfer is not in pursuance of a sale, the liability arises on the making of a transfer therefore the new change would only apply to transfers on or after 1 July 2006. However, in the most common scenario, transfers in pursuant of a sale, it is conceivable that a party could have committed itself before 1 July 2006 to complete a sale of shares on or after 1 July 2006. In entering into the sale agreement, if the entity has concluded that, on the basis of the 80% test it is not land rich, the effect of section X is that if the transfer happened on or after 1 July 2006 when the new law is enforced and under the new test, the company is land rich then a liabilities to land rich duty would arise. In a very real sense, this is a retrospective change because a purchaser will have sought advice prior to entering into any legally binding agreements. This is very similar to the fact pattern which arose in the decision of Affinity Health Limited v Chief Commissioner of Revenue [citation to be provided] which arose out of a similar change in NSW law in late 2003 where the taxpayer was legally committed to entering into the share transfer but the share transfer took effect after the change to the law became effective. In that case, the NSW Supreme Court held that the Chief Commissioner ought to have exercised his discretion under section X of the Duties Act 1997 (NSW) not to impose duty on the grounds it would not be just and reasonable to do so.

If you would like any assistance in making submissions to the Queensland OSR then please contact one of us.

Changes to Queensland transfer dutyUnder an earlier announcement, the top rate of QLD transfer duty is to change from 3.75% to 4.50% with the effect from 1 July 2006. The new rate will apply to liabilities which arise on or after 1 July 2006 therefore if an agreement for the sale of a business is signed before 1 July 2006 but completed afterwards, the old lower rate will apply; whereas an agreement formed and completed wholly after 1 July 2006 will be subject to duty at the new rates. The full QLD rate scale is set out below.

In relation to land rich duty transactions, these new rates will also apply. However, we also note that because section X, if the liability arises on a transfer, not only could land rich duty suddenly become payable whereas previously it would not have been payable under the 80% test but it also means the new 4.50% rate will apply.