Victorian Commissioner clarifies position on ‘associated transactions’ and offers temporary amnesty for past capital raisings

On 8 October 2024, in response to the Victorian Court of Appeal’s recent decision in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175, the Commissioner issued an updated ruling on the meaning of ‘associated transactions’ in landholder tax provisions, and offered a penalty tax amnesty for taxpayers who voluntarily disclose liabilities arising from historical capital raisings.

See our previous post on the significance of the Oliver Hume decision here.

Key points to note from the Commissioner’s updated position on ‘associated transactions’ are:

• The Commissioner has updated their ruling on ‘associated transactions’ to clarify that capital raisings pursuant to a genuine public offer under a product disclosure statement or prospectus, if they result in a private landholder converting to a public company or public unit trust scheme, will not be treated as ‘associated transactions’ taxable at the full duty rate. This is in recognition of the specific provisions and concessional rate of duty which apply to these transactions.
• However, if a capital raising does not result in a conversion to a public company or public unit trust scheme, and circumstances exist which indicate that some or all of the acquisitions form part of substantially one arrangement, the Commissioner is more likely to consider the acquisitions as ‘associated transactions’.
• The Victorian State Revenue Office will undertake a compliance program on capital raisings in landholders in 2025. Landholders are encouraged to review their historical capital raisings in light of the Oliver Hume decision and updated ruling on ‘associated transactions’, and make voluntary disclosures of unpaid liabilities for duty before 31 March 2025.
• Landholders who disclose liabilities from historical capital raisings before 31 March 2025 will be entitled to an amnesty from penalty taxes and will be charged a reduced rate of interest.

The new ruling is a timely reminder that the risk landscape for capital raising has changed and existing structures should be revisited to ensure that they do not give rise to unexpected outcomes.

Updated Ruling from the Commissioner

The updates to the Commissioner’s ruling clarify how capital raisings pursuant to a genuine public offer will be treated by the Commissioner, following the Oliver Hume decision. There are no new examples or substantive analysis in the updated ruling.

The relevant provisions of the Duties Act 2000 (Vic) provide that associated transactions are transactions which ‘form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions’. Duty is payable on acquisitions in landholders which are part of “associated transactions”.

In Oliver Hume, the Victorian Court of Appeal determined:

• the “substantially one arrangement” test requires an objective characterisation of all surrounding circumstances to determine if there is any relevant “oneness” between the acquisitions; and
• circumstances which may indicate acquisitions are “substantially one arrangement” include:

1. the acquisitions being dependant or conditional upon each other, such that no acquisition could go ahead without all the acquisitions or a minimum number of acquisitions going ahead. This may be the case even if the acquirers have not met each other or communicated with each other;
2. the acquisitions result from a single contract, plan or agreement; and
3. the acquisitions occur on the same day or in the same way, such that the effect of the acquisitions was to substantively alter the shareholding in the landholder.

The updates to the Commissioner’s ruling clarify, that although “interests acquired by independent members of the public under a genuine public offer may constitute an ‘associated transaction’” under this definition:

• the Commissioner will not treat “acquisitions of interests by independent members of the public as an associated transaction if the acquisitions are made in response to a genuine public offer under a product disclosure statement or prospectus lodged with the Australian Securities and Investments Commission”; but
• this exclusion will not apply “where the public offer does not convert the private landholder to a public landholder, being either a listed company or public unit trust scheme and other circumstances exist which indicate that some or all of the acquisitions form part of substantially one arrangement, one transaction or one series of transactions”. Such circumstances could include one person’s acquisition being subject to and conditional upon another person’s acquisition.

The ruling is silent on the Commissioner’s approach to demergers where the demerged entity does not become listed.

The public float exception is intended to reflect that separate provisions and concessional rates apply to conversions of private landholders to public landholders under the Duties Act 2000 (Vic).

However the updated ruling is applicable only to the determination of whether acquisitions are “associated transactions”, and does not impact whether a transaction may qualify for the concessional rate.

Voluntary Disclosure Regime

In recognition of the fact that advisors and landholders may have interpreted the meaning of “associated transactions” differently prior to the Oliver Hume decision, the Commissioner is providing landholders with a penalty tax amnesty on voluntary disclosures of liabilities arising from capital raisings.

The amnesty will run until 31 March 2025, after which the Commissioner will commence a compliance program on capital raisings in landholders.

For disclosures made before 31 March 2025, the Commissioner will:

• remit all penalty tax; and
• impose interest at the market rate and reduced 3% premium rates on any disclosed liabilities.

The voluntary disclosure regime is a timely reminder that the risk landscape for capital raising has changed and existing structures should be revisited to ensure that they do not give rise to unexpected outcomes.