The Victorian Court of Appeal handed down judgement in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175 (Oliver Hume decision) last week, upholding the previous decision of the Victorian Civil and Administrative Tribunal (VCAT).
The Oliver Hume decision found that shares issued under an information memorandum (IM) to unrelated investors raising funds for property development in Victoria were aggregated for the purposes of Victorian landholder duty on the basis that the “acquisitions form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions”.
Although Oliver Hume is a Victorian decision, due to the similar wording adopted in landholder duty provisions in other Australian jurisdictions, this decision raises questions about the potential expansion of the landholder duty net to capital raisings and other transactions involving unrelated parties, particularly in the real estate funds industry.
What happened?
The Oliver Hume decision involved 18 independent unrelated investors who subscribed for shares in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd (ProjectCo) under an IM which was offered to ‘sophisticated investors’ under the Corporations Act 2001 (Cth) (Corporations Act). Investors were sourced through the Oliver Hume database, as well as circulated through a third party to its list of subscribers. The IM was not required to be lodged with ASIC as there was no disclosure required under the Corporations Act.
The land had already been acquired prior to the release of the IM and the issue of the subscription shares, and the IM stated that if the target of 1.8 million shares were not subscribed for, the investors’ application funds would be returned to them. On the issue of the subscription shares, the investors collectively acquired a 99.99% interest in ProjectCo (which was previously a wholly owned subsidiary of the Oliver Hume Group).
No landholder duty was paid on the issue of the shares on the basis that the investors were unrelated, independent parties and no investor acquired an interest in ProjectCo of more than 50% (i.e. a significant interest in a private landholder).
The Victorian State Revenue Office later commenced an investigation and issued landholder duty assessments on the basis that the aggregated 99.99% interest acquired by the investors was an associated transaction under the Victorian Duties Act.
What did the Court decide?
Although the Court noted that Oliver Hume made a number of valid arguments and granted leave to appeal, the appeal was ultimately dismissed (upholding the earlier VCAT decision) on the basis that there were a number of interconnecting factors present which exhibited a ‘oneness’ or ‘unity of purpose’ and therefore suggesting an associated transaction. These factors included that:
- the acquisitions were interconnected as no acquisition could go ahead under the IM unless the subscription target was reached and, if this condition was not satisfied, the application monies would be returned;
- the acquisitions were interconnected on the basis that it was the intention of ProjectCo to raise the funds and this could exist unilaterally even where the investors were unrelated parties and had never met or interacted with each other;
- the investors bound themselves together by subscribing for shares and therefore agreeing to the statutory contract represented by ProjectCo’s Constitution, which set out the terms and conditions to which shareholders were agreeing to be bound by; and
- the fact the acquisitions of the shares occurred on the same day, and in the same way, with the purpose of substantively altering the shareholding in ProjectCo (which went from 100% owned by the Oliver Hume Group to being owned nearly entirely by private investors).
Application to other jurisdictions
Generally, the aggregation provisions may apply where “acquisitions form, evidence, give effect to or arise from substantially one arrangement, one transaction or series of transactions”, or where acquirers are considered ‘related parties’ or ‘acting in concert’. Although there are significant differences which exist between landholder duty provisions in each of the States and Territories, there are similarities across jurisdictions which could potentially lead to a similar interpretation as in this case.
Although some Revenue Authorities have a published view that public offerings will not be considered to be aggregated where shareholders are unrelated, it cannot be assumed that this position will be automatically adopted in non-public transactions.
Interestingly, the Member in VCAT commented on the fact the Victorian Commissioner’s Public Ruling DA.057, which states the Commissioner’s position that discretion may be exercised to treat a transaction as not an ‘associated transaction’, introduced a concession which the Member was of the view that the legislation did not provide.
Whilst most Revenue Authorities have similar publications (for example, public rulings, practice directions, circulars or guidelines) providing guidance as to how the Commissioner will interpret a particular section or meaning under the legislation, it is important to remember that, in contrast to the rulings published by the Australian Tax Office, these publications are not binding and only provide guidance as to the Commissioner’s view on a particular topic at a given point in time. To the extent there is a change to legislation or the case law, this will override the publication.
What happens now?
The Oliver Hume decision confirms the importance of advisors and clients obtaining specialist duty advice when dealing with capital raisings or structuring proposed transactions, particularly in circumstances where interests may be acquired by parties – whether related or unrelated – in a company or unit trust which holds land.
As the complexities of the landholder duty regime continue to grow, expanding to include items fixed to land, land under uncompleted contracts, and in some jurisdictions, land subject to put and call options, it is critical that duty issues are considered and advice obtained in the early stages of planning and structuring of a transaction to avoid any unexpected duty surprises (or at the least ensure these are factored into the overall costs of the transaction).
For more information, please contact Catherine Nufer or a member of Hamilton Locke’s Tax team.
