What is it?
Stamp duty is a tax imposed at state and territory level on certain transactions, for example transfers of businesses, land or intellectual property, and acquiring interests in partnerships or trusts with Australian assets.
In terms of offshore transactions, stamp duty can also apply to dealings in companies and trusts (entities) that are entitled to Australian real estate assets, whether directly or through downstream entities. Where these ‘landholder’ provisions apply (not to be confused with the ‘land rich rules‘ of Australian capital gains tax), state stamp duty can be payable at rates of up to 7.25 percent of the gross market value of the landholdings and goods of both the entity and any downstream entities.
As Australia’s mainland has five states and three territories, it should come as no surprise that the stamp duty regimes differ significantly, both in the way they operate and in their rates.
What types of transactions will attract landholder duty?
Landholder provisions must be considered when:
- acquiring an interest of 50 percent in an unlisted private company
- acquiring an interest of 20 percent in an unlisted unit trust
- acquiring an interest of 90 percent in a listed company or trust.
Importantly, some acquisitions can be liable for Australian stamp duty even where no Australian entity is directly involved – the only requirement is that it involves Australian land. For stamp duty purposes ‘land’ means not only freehold land, but also interests in land such as leases, fixtures (such as buildings and infrastructure), mining tenements and also items that are merely attached to the land.
Duty liability can result not only from direct acquisitions of entities, but also as a result of mergers or liquidations. For example, a takeover of one listed multinational mining company by another on the NYSE, LSE or other international exchange could result in stamp duty being imposed (commonly at 5.5 percent) on the gross value of all of the Australian mining tenements, offices, plant and machinery of the acquired company, as well as its downstream entities.
Even a transaction between group entities, such as a merger or internal restructure, can be liable for duty. Although some exemptions are available for intra-group transactions, the requirements differ significantly between different states and territories and are not automatic. Businesses will need to prepare submissions to the revenue authorities detailing why the exemption should be granted and satisfying complicated requirements.
To add to the complexity of the landholder rules, anti-avoidance provisions exist that pool interests acquired by related parties (such as related corporations) or unrelated parties acting in tandem. Duty can also arise on certain derivative arrangements relating to rents, profits and capital appreciation of landholdings. This means that an entity can be deemed a ‘landholder’ even though it doesn’t actually own any land.
Why should you care about Australian stamp duty?
The enforcement mechanisms differ between states. If the duty is not paid, the revenue authorities have the power to seize and sell the land to settle the liability. Other impacts can include director liabilities, financial penalties and, of course, reputational risk, which can be hard to recover.