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You will pay duty if an arrangement is made on or after 19 June 2019 to acquire fixtures of significant value separately from the underlying land on which the fixtures are located.

For the purposes of the Duties Act 2000 (the Act), fixtures are:

  • Something that constitutes a fixture at law, being tangible property that is attached to land so that it becomes part of the land.
  • Any other items fixed to land, including tenant’s fixtures.

This ensures all items fixed to land are treated as a fixture, irrespective of whether the item is technically not a fixture at law because, for example, it can be severed and moved from the land sometime in the future.

Affected transactions

Interests in fixtures can be dealt with or held separately from the underlying land. For example, fixtures can remain owned by a tenant while the underlying land is transferred, or an interest in the fixtures might be transferred while the land does not change ownership.

You often acquire fixtures when you acquire a business. If this involves a transfer of fixtures together with an assignment of a non-dutiable lease, and these fixtures are of significant value, you may pay duty on the acquisition of the fixtures.

If, by acquiring the business, the underlying land (i.e. the freehold) is transferred to you, you will pay duty on the combined value of the land and fixtures. These transactions are not affected by the new provisions that apply on or after 19 June 2019.

Amount of duty

Whether you pay duty depends on the unencumbered value of the fixtures (taken as a whole) involved in the arrangement , rather than the value of the interest in the fixtures you are acquiring.

If the unencumbered value of the fixtures (taken as a whole) does not exceed $2 million, no duty is payable.

Example 1 - No duty on fixtures under $2 million

Finn is buying a commercial business from Keira. As part of this arrangement, Keira will transfer the business lease and all the fixtures held by the business to Finn. The lease is a non-dutiable lease. The unencumbered value of the fixtures as a whole is $1.9 million.

Duty only applies when the unencumbered value of the fixtures subject of the arrangement is more than $2 million. As the unencumbered value of the fixtures is $1.9 million, Finn does not pay duty on this arrangement.

If the unencumbered value of the fixtures (taken as a whole) is more than $2 million but does not exceed $3 million, duty is calculated using the following formula:

[(A - $2,000,000) ÷ $1,000,000] × B

where:

A is the unencumbered value of the fixtures (taken as a whole)

B is the duty that, apart from this section, would be chargeable on the dutiable transaction under Chapter 2 of the Act

The effect of this formula is that duty is phased in. Duty will be closer to nil the closer the unencumbered value of the fixtures (taken as a whole) is to $2 million. The closer the fixtures' unencumbered value is to $3 million, the closer the duty chargeable will be to the full amount that would normally apply.

Example 2 - Fractional interest and phasing-in formula

Alpha enters into an arrangement to purchase a 20% interest in fixtures (but not the underlying land) owned by Beta. Alpha is not a foreign purchaser.

The unencumbered value of the fixtures taken as a whole is $2.5 million. The value of the interest in the fixtures acquired by Alpha is $500,000 (being $2.5 million × 20%). 

As the unencumbered value of the fixtures (taken as a whole) is $2.5 million, Alpha must pay duty. However, the phasing-in formula applies as the unencumbered value of the fixtures (taken as a whole) is more than $2 million but not more than $3 million.

Duty is calculated as follows:

Duty = (A - $2,000,000 ÷ $1,000,000) × B

where:

A is the unencumbered value of the fixtures and B is the duty that would be chargeable but for applying this formula, and

B is calculated by taking the value of the interest in the fixtures acquired by Alpha ($500,000) and applying the general rate of duty that applies. The rate of duty on dutiable property valued at more than $130,000 but not more than $960,000 is $2870 + (6% of the amount that exceeds $130,000))

Therefore, A is $2,500,000 and B is $25,070 (being $2870 + (6% × ($500,000 - $130,000))

Duty = ($2,500,000 - $2,000,000 ÷ $1,000,000) × $25,070

Duty = ($500,000 ÷ $1,000,000) × $25,070

Duty = 50% × $25,070

Duty = $12,535

If the unencumbered value of the fixtures in the arrangement (taken as a whole) is above $3 million, full duty at the general rates is payable. 

Example 3: General rates and the aggregation of fixtures

Sigma enters into an arrangement to purchase a 100% interest in fixtures (but not the underlying land) owned by Omega. Sigma is not a foreign purchaser. The unencumbered value of the fixtures (taken as a whole) is $4 million.

As the unencumbered value of the fixtures (taken as a whole) is more than $2 million, Omega must pay duty. As the value of the fixtures is more than $4 million, duty is calculated as follows at general rates.

Duty = The value of the fixtures acquired × applicable rate

The rate of duty on dutiable property valued at more than $960,000 is 5.5%

Duty = $4,000,000 × 5.5%

Duty = $220,000

Fixtures and land acquired together

Fixtures sold together with land are subject to duty as part of charging duty on the transfer of the land. Accordingly, these provisions do not apply to these transactions.

Further, the fixtures exemption and phasing-in concession do not apply if the arrangement involves a dutiable lease referred to in section 7(1)(b)(v) or section 7(1)(b)(va) of the Act in relation to the underlying land on which the fixtures are located.  

Aggregation

Separate dutiable transactions (including separate fixture transactions) can be aggregated and treated as one dutiable transaction if the transactions together form or give effect to substantially one arrangement. There is no time limit for aggregating fixture transactions.

Example 4: Aggregation of fixtures

Ravi acquires a retail chain operating from four stores across Victoria under separate non-dutiable leases with different landlords. The value of the fixtures at each site is $1.5 million.

If Ravi was only acquiring one shop on its own (assuming no other dutiable property), there would be no duty consequences as the fixtures for that site are valued at less than $2 million. However, as Ravi is acquiring four stores, the value of all fixtures acquired under the arrangement is aggregated. 

The value of all fixtures acquired under the arrangement is $6 million ($1.5 million × 4).

As the unencumbered value of all the fixtures is more than $3 million, duty at general rates applies. The phasing-in concession does not apply.

Duty is calculated as follows:

Duty = The value of the fixtures acquired × applicable rate

The rate of duty on dutiable property valued at more than $960,000 is 5.5%

Duty = $6,000,000 × 5.5%

Duty = $330,000

Example 5: Aggregation of fixtures transactions

Gamma agrees to buy all the assets of a wind farm. The wind farm comprises eight wind turbines located on land leased from a third party. The leases are non-dutiable leases. The agreement provides that the acquisition of each turbine will complete separately on separate days.

Each turbine is considered a fixture. The value of each turbine is $1.5 million, meaning the total value of all fixtures subject to the arrangement is $12 million.

The aggregation rules apply to the acquisition of each turbine. Therefore, all of the transactions are aggregated as if there is one dutiable transaction relating to fixtures worth $12 million.

As the unencumbered value of all the fixtures is more than $3 million, duty at general rates applies. The phasing-in concession does not apply.

Duty is calculated as follows:

Duty = The value of the fixtures acquired × applicable rate

The rate of duty on dutiable property valued at more than $960,000 is 5.5%

Duty = $12,000,000 × 5.5%

Duty = $660,000

However, to preserve the benefit of the thresholds, a fixture transaction and another dutiable transaction (not involving the underlying land or a dutiable lease concerning the underlying land) are not to be aggregated if the fixture transaction relates to fixtures with a value that does not exceed $3 million.

Example 5: Aggregation fixtures and other land transaction

Zhi buys a 50% interest in a Melbourne manufacturing business. The business operates from a leased site (non-dutiable lease) . Its assets comprise the manufacturing assembly line (tenant's fixture) valued at $2.5 million and a separate piece of freehold land, used as a car park, valued at $2 million . 

As the land and fixtures are being purchased under one arrangement they are prima facie aggregated and treated as one dutiable transaction. However, given the value of the fixtures (taken as a whole) is less than $3 million and the land transfer is not for the land on which the fixtures are located, the duty payable is to be separately calculated as if aggregation did not apply.

Calculating duty - fixtures component

The duty payable for the acquisition of 50% of the fixtures (i.e. the assembly line) will be calculated in accordance with the phasing-in formula given the fixtures are valued above $2 million but not more than $3 million. Accordingly, the duty payable for the fixtures part of the arrangement is $34,375.

This is calculated as follows:

Duty = (A - $2,000,000 ÷ $1,000,000) × B

Where A is the unencumbered value of the fixtures and B is the duty that would be chargeable but for applying this formula.

B is calculated by taking the value of the interest in the fixtures acquired by Zhi ($1,250,000) and applying the general rate of duty that applies. The rate of duty on dutiable property valued at more than $960,000 is 5.5 per cent.

Therefore, A is $2,500,000 and B is $68,750 (being $1,250,000 × 5.5%)

Duty = ($2,5000,000 - $2,000,000 / $1,000,000) × $68,750

Duty = ($500,000 / $1,000,000) × $68,750

Duty = 50% × $68,750

Duty = $34,375

Calculating duty - Land component

The duty payable for the acquisition of 50% of the land is $55,000.

This is calculated as follows:

Duty = Dutiable value of property × applicable rate × 50% interest

The rate of duty on dutiable property valued at more than $960,000 is 5.5 per cent.

Duty = $2,000,000 × 5.5% × 50%

Duty = $55,000

Calculating duty - Total (aggregated) duty

The duty payable is the sum of the two calculations and is $89,375 ($34,375 + $55,000).