Retrospective stamp duty payments for the last 20 years of capital raisings by landholders in Victoria now a possibility

Since early August, investors in Victoria in any capital raising could be liable to pay duty on their acquisition – even if investors individually acquire minority interests and are not related or associated with each other in any way and do not know of each other. At the time, we noted the decision in the Oliver Hume case “raised serious questions about the duty payable not only on future capital raisings involving the acquisition of an interest in a landholder, but also on historical transactions.”

It appears that this thought was not far from the Victorian Commissioner's mind. Now that the taxpayer in the Oliver Hume decision has decided not to seek special leave to appeal in the High Court, the Commissioner is reviewing past capital raisings in landholding private companies and private unit trusts by commencing a "compliance program". He is inviting taxpayers to make voluntary disclosures for past acquisitions in a landholder where taxpayer had participated in a capital raising (such as under a Product Disclosure Statement (PDS) or Information Memorandum (IM))

To recap, in the Oliver Hume decision, the Court of Appeal upheld the Victorian Civil and Administrative Tribunal's finding that acquisitions made by 18 investors pursuant to a conditional capital raising were subject to duty as an associated transaction, despite the fact that the acquirers were independent subscribers and were not personally acquainted with each other.

Amnesty from penalties and interest

The Commissioner has said that prior to commencing this compliance program, he will be providing taxpayers with a penalty tax amnesty on voluntary disclosures of liabilities arising from capital raisings if those disclosures are made by 31 March 2025.

For those disclosures made by 31 March 2025, the Commissioner will remit all penalty tax and will only impose interest at the market rate plus the reduced 3% premium rates.

However, for any liabilities identified after 31 March 2025, the Commissioner will assess penalties and interest at the usual rates set out in the Taxation Administration Act 1997 (Vic) (TAA). The penalty tax ranges from 25% to 75% of the unpaid tax (noting that there are provisions to reduce this for disclosures before or during investigation).

How far can the Commissioner really look back?

There is no time limit on how far back the Commissioner can go in reviewing past transactions because the taxpayers will not have made a lodgement in the first place. In the absence of a lodgement, there is no statutory limitation under the TAA on the Commissioner's ability to assess transactions that may have occurred even more than two decades ago. This is not an exaggeration. Read on to know why!

It seems to us that the Commissioner can go as far back as 16 April 2004 to reassess transactions under this compliance program. That date is significant because it was when the concept of "associated transactions" was introduced into the Victorian Duties Act 2000 and was also the date when the actual landholder itself was made jointly and severally liable for any land-rich or landholder duty that was payable by an acquirer in Victoria. Whether the Commissioner is realistically able to pursue transactions that far back in time remains to be seen.

For land-rich or landholding private companies and trustees of private unit trusts that have undertaken capital raising activities on and from 16 April 2004 and which have remained in existence (ie. have not been wound up), those entities themselves would be jointly and severally liable (with the acquirers of any interests) for any duty that was payable as result of the retrospective application of the Oliver Hume decision.

The onus would be on those entities to make a voluntary disclosure and to pay the duty.

The ultimate cost of course would be paid by the existing shareholders and unitholders who may not have been taxpayers themselves at the time of that historical transaction, but who will nonetheless fund the historical liability through reduced distributions.

New Revenue Ruling

On 8 October 2024, the Commissioner also published Revenue Ruling DA-057v2, which revises Revenue Ruling DA-057. Prior to the Oliver Hume decision, taxpayers may have obtained comfort from the Commissioner's views expressed in Revenue Ruling DA-057. However, this will no longer be possible going forward due to the Commissioner's new views as expressed in Revenue Ruling DA-057v2. In the new Revenue Ruling, the Commissioner says that he will treat acquisitions of interests made by independent members under a genuine public offer as an associated transaction 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." This statement indicates that unless the private landholder will be converted into a public landholder, acquisitions made by individuals as part of a capital raising in a private landholder will be at a significant risk of being treated as an associated transaction.

The updates to the old ruling also suggest that, where a capital raising would not go ahead unless a minimum level of subscription was met, then the acquisitions by investors may be aggregated for landholder duty purposes. In other words, the very basic commercial decision to only proceed with a capital raising if there are enough investors indicating an interest would be sufficient to result in a taxing event.

Self-assessment versus the Commissioner’s broad powers

One may wonder how the Commissioner will seek to reassess the myriads of taxpayers who may have participated in various capital raising activities without even realising that a future court decision would capture a past transaction. How does the Commissioner ever find out? This is after all a self-assessment regime.

As stated earlier, there is no statute of limitation that appears to apply to the Commissioner where a lodgement was not made by a taxpayer in the first instance. However, the Commissioner does have very broad investigative powers under the TAA under which he can serve a notice and require any person to provide the Commissioner with any information described in the notice.

We expect the Commissioner will be targeting all the top asset managers and real estate investment trusts to begin with, and may seek copies of PDS lodged with ASIC as part of his compliance program.