Decision Alert: VCAT treats appointment of director of trustee company as dutiable under landholder duty rules

Unique to Victoria and the Northern Territory are anti-avoidance provisions which can deem a relevant (dutiable) acquisition in a landholder to have occurred by way of control in certain circumstances. Under these provisions, a person who acquires control (either indirectly or directly) of a private landholder, is taken to have made a relevant acquisition in that landholder of 100% or a lesser percentage determined at the Commissioner of State Revenue’s discretion.

A recent decision before the Victorian Civil and Administrative Tribunal (VCAT) considered the Victorian control provisions in the context of a change in director of a trustee company.

On 11 July 2024, the VCAT handed down its decision in Tao v Commissioner of State Revenue (Review and Regulation) [2024] VCAT 637 which upheld the Commissioner of State Revenue’s finding that the taxpayer, in becoming the sole shareholder and director of a trustee company, had acquired control of the underlying landholding trust and therefore made a relevant acquisition in that trust.

This case is an important reminder that care needs to be taken in the context of management changes in trustee companies of landholding trusts. It is important to consider potential duty implications well ahead of time to ensure that any change of control issues are identified and addressed.

Background to the case

66 William Road Pty Ltd (Trustee Company) was set up by the taxpayer and two other associates as a special purpose vehicle for the purposes of carrying out property developments.

Around 18 March 2011, the Trustee Company was incorporated with one of the other associates appointed as sole shareholder, director and secretary. The Trustee Company later entered into a deed to establish the WCT Unit Trust.

Units in the WCT Unit Trust were issued as follows:

• 50 units to Maclaw No547 Pty Ltd and 25 units to Fredco Incorporated Ltd (each of which were associated with the taxpayer’s associates)
• 25 units in Amber Investments Pty Ltd (in which the taxpayer held 6 out 10 of shares on issue)

On 21 April 2011, the Trustee Company in its capacity as trustee of WCT Unit Trust, entered into a contract to purchase property at 74-84A Hutchinson Road, Lynbrook (the Property), funded by a loan which was later transferred to Bendigo Bank.

Following disagreement about the management of the Trustee Company by the associate, the taxpayer acquired the 4 shares on issue in the Trustee Company on 11 February 2014 and became the sole director and secretary of the company on 6 March 2014.

Between March 2014 and March 2015, the taxpayer was in contact with Bendigo Bank to discuss discharge of the mortgage over the Property. However, by 20 April 2015, controllers were appointed over the Trustee Company who later arranged for the Property to be sold.

On 31 May 2019, the Commissioner of State Revenue issued a notice of assessment, imposing duty of $199,650 (in addition to penalties and interest) in relation to taxpayer’s:

• acquisition of the 4 shares in the Trustee Company on 11 February 2014; and
• taxpayer’s appointment as sole director and secretary of the Trustee Company on 5 March 2014.

This assessment was made on the basis that the taxpayer had made a relevant acquisition in the WCT Unit Trust as a result of acquiring control of the trust pursuant to Section 82 of the Duties Act 2000 (Vic).

The relevant legislation

Section 82 of the Duties Act 2000 (Vic) provides that

1. (1)  … if a person within a 3 year period acquires, directly or indirectly, control over a private landholder, other than by a relevant acquisition dutiable under this Part, then, on the acquiring of that control, the person is taken, for the purposes of this Part, to have made a relevant acquisition in the landholder of—
   1. 100%; or
   2. a lesser percentage determined by the Commissioner to be appropriate in the circumstances.
2. For the purposes of subsection (1), a person acquires control over a private landholder if the person acquires the capacity to determine or influence the outcome of decisions about the private landholder's financial and operating policies, taking into account—
   1. the practical influence the person can exert in addition to any rights the person can enforce; and
   2. any practice or behaviour affecting the private landholder's financial or operating policies (even if that practice or pattern of behaviour involves the breach of an agreement or a breach of trust).
3. Subsection (1) applies regardless of interests or economic entitlements held by any other person in the private landholder.

Relevantly, this is the first published decision of the VCAT to consider the interpretation and operation of section 82.

Key issues

The primary issues in dispute were:

• Whether the taxpayer had acquired control of the WCT Unit Trust when he acquired the shares in and became sole director of the Trustee Company; and
• Whether it was necessary that the taxpayer obtain an interest in the Trust to engage section 82.

VCAT’s Decision

VCAT made the following findings:

• the taxpayer had acquired control of the WCT Unit Trust on his appointment as director of the Trustee Company. Although the taxpayer argued that he was merely responsible for the ‘day to day’ management of the Trustee Company, VCAT paid particular attention to the taxpayer’s role in negotiating the repayment of the loan with Bendigo Bank as evidence of his responsibility over the financial and operating policies of the WCT Unit Trust. This was notwithstanding that the other associates as unitholders could have had the Trustee Company removed as trustee pursuant to a power in the trust deed which would have ended the taxpayer’s control (but ultimately did not do so).
• as a matter of statutory interpretation, it was not necessary for the taxpayer to have attained a ‘beneficial, synthetic or other ‘equivalent’ interest’ in the WCT Unit Trust to engage section 82. It was acknowledged that the taxpayer had not acquired any beneficial interest in the landholder (that is, neither he, nor Amber Investments Pty Ltd, obtained a further unitholding in the WCT Unit Trust). Notwithstanding this, specific attention was placed on the wording of section 82 which provides that the section applies in the absence of a relevant acquisition of a significant interest or economic entitlement. VCAT concluded that this would suggest that section 82 was not intended to be linked to any ‘beneficial or synthetic interest in the trust’.
• a reduction in duty payable from 100% was in order, on account of the 25% unitholding in the WCT Unit Trust already held by Amber Investments Pty Ltd. This was apportioned as a 15% reduction given that that taxpayer held 6 out of the 10 shares on offer in Amber Investments Pty Ltd (60% of 25%).

This case highlights the expansive scope of the control provisions and the circumstances in which capacity to influence the financial or operational policies of landholding companies and trusts may be found.

It is also interesting to note that a similar control test applies for determining whether a “foreign or absentee person” has a substantial or controlling interest in a trust or corporation for the purpose of assessing the trust or corporation to foreign purchaser additional duty (an additional 8% duty) or absentee owner surcharge land tax (an additional 4% land tax) on the basis that it is a “foreign or absentee corporation or trust”.

Taxpayers should exercise caution before making directorship or ownership changes and seek stamp duty advice to mitigate unexpected duty outcomes.