Changes in beneficial ownership of property without changing legal ownership
A transfer of an equitable estate or interest in land or a transaction that results in a change in the beneficial ownership of land attracts duty at the same rates as a transfer of full legal title to land.
Transfer of an equitable estate or interest in land
Under the Duties Act 2000 (the Act), dutiable property is defined to include an estate in fee-simple in land in Victoria. It is also defined to include an 'interest' in any dutiable property. This means that the transfer of an equitable estate or interest in land is chargeable with duty in the same way as a land transfer.
Transactions resulting in a change in the beneficial ownership of land
Duty is also payable on a transaction that results in a change in the beneficial ownership of dutiable property (other than a transaction involving units in a unit trust scheme). In this context, the expression 'beneficial ownership' has a wide meaning and extends beyond merely equitable ownership (see Woodfield Constructions v Commissioner of State Revenue (Taxation)  VCAT 2518).
For the purposes of the Act, beneficial ownership includes ownership of dutiable property by a person as trustee of a trust. It also includes the interest a person may have in a fixed trust or joint venture that owns land in Victoria.
From 14 June 2018, the Act also deems a partner in a partnership to have beneficial ownership of each item of partnership property in the same proportion as their interest in the partnership. Therefore, transactions in partnership structures such as a transfer of a partnership interest or the retirement of a partner resulting in the enlargement of the other partner's interests in the partnership will be dutiable where partnership property includes dutiable property.
A change in the capacity in which a person holds dutiable property is a change in beneficial ownership transaction that is liable for duty under the Act (see Rakmy Pty Ltd v Commissioner of State Revenue  VSC 237).
Other examples of transactions that result in a change in the beneficial ownership of dutiable property (land in Victoria) held under a fixed trust, joint venture and trust partnership structure follow.
ABC Pty Ltd as trustee of the ABC Trust owns land in Victoria. The ABC Trust is a fixed trust with three named beneficiaries each identified as being entitled to a certain proportion of the trust and trust fund - Mr Green as to 20 per cent, Mr White as to 30 per cent and Black Pty Ltd as to 50 per cent. Under the terms of the trust, ABC Pty Ltd is bound to distribute the trust’s income and capital to the beneficiaries in the stated proportions.
One of the beneficiaries, Mr White, wishes to dispose of his interest and has offered it for sale to Black Pty Ltd, being one of the other beneficiaries. Black Pty Ltd accepts Mr White’s offer and the sale/purchase of the interest is effected through a contract of sale and a deed of assignment.
As the purchaser, Black Pty Ltd has acquired a beneficial interest in Victorian land and is required to lodge the deed of assignment and pay duty. As with all land transfers, duty is calculated by reference to the greater of the consideration paid and the unencumbered value of the interest in the land.
Companies A, B and C have entered into a joint venture agreement (JV Agreement) to acquire and develop land in Victoria through an associate company, Z Pty Ltd. Under the terms of the JV Agreement, Z Pty Ltd has agreed to act as nominee and hold the JV assets in the proportions the parties have agreed to fund the purchase and development of the land - Company A as to 50 per cent and Companies B and C as to 25 per cent each.
Due to Company C failing to make a milestone payment towards the development of the land, Companies A and B have exercised their preemptive rights under the JV Agreement and acquired in equal share Company C’s interest in the joint venture. Other than trustee minutes approving the terms of the sale and the acquisition of the interest, no instrument is executed by the parties to effect the transaction.
As the arrangement results in Companies A and B’s beneficial ownership in the JV land increasing, they together are taken to have acquired a 25 per cent beneficial interest in the land. Duty is calculated by reference to the greater of the consideration paid for the transaction and the unencumbered value of the interest in the land.
ABC Pty Ltd, as bare trustee and nominee of the Land Partnership, owns a property in Melbourne with an unencumbered value of $4 million. The deed establishing the Land Partnership shows that the capital of the partnership is held equally by D Pty Ltd, E Pty Ltd, F Pty Ltd and G Pty Ltd. The deed also provides that the manager of the partnership, being ABC Pty Ltd, holds the property of the partnership in its name in trust for the partners as an entirety and will deal with that property as directed by them. The liabilities of the Land Partnership are $2 million.
Due to a realignment of business interests, D Pty Ltd wishes to leave the partnership and offers to sell its 25 per cent interest to a new partner, Z Pty Ltd. Consequently, an agreement to sell the partnership interest is entered into between D Pty Ltd and Z Pty Ltd.
From 14 June 2018, for the purposes of the Act, Z Pty Ltd is taken to acquire 25 per cent beneficial ownership of the land of the Land Partnership from D Pty Ltd under the transaction. Therefore, there will be dutiable transaction consisting of a change in beneficial ownership in the land with a dutiable value of $1 million (i.e. 25 per cent of $4 million).
Liability and lodgement requirements
The transferee, being the person who obtained the beneficial ownership or whose beneficial ownership increased, is taken to have completed a dutiable transaction and is liable for duty.
Where a written instrument such as a transfer of land, declaration of trust or Deed of Assignment is executed, the dutiable transaction should be lodged via Duties Online for SRO determination (Electronic Lodgement). If the change in beneficial ownership transaction is not affected by a written instrument, the transferee should contact the State Revenue Office by email to arrange lodgement. Similar to a transfer of land, duty is payable by reference to the greater of the:
- consideration (if any) for the dutiable transaction, and
- unencumbered value of the dutiable property.
Please refer to our summary of current duty rates for further guidance.
Acquisitions in partnership structures prior to 14 June 2018
Prior to the amendments to the Act that came into effect on 14 June 2018, some transactions in partnerships may not have given rise to a duty liability (see Commissioner of State Revenue v Danvest Pty Ltd and Bullhusq Pty Ltd  VSCA 382).
Danvest considered whether the acquisition of a partnership interest in a partnership, the property of which included land in Victoria held by a manager as nominee on behalf of the partners, amounted to a presently existing equitable proprietary interest in that land and therefore gave rise to a liability to duty under the Duties Act 2000 (the Act).
The court held that it did not. It found that the interest acquired was not a vested proprietary interest in any specific property of the partnership but was an equitable chose in action, being a right to a proportion of surplus assets, as a mere expectancy, on the dissolution of the partnership. The interest acquired was not an “interest in an estate in fee simple” within the meaning of the Act.
From 14 June 2018, this case no longer applies to partnership transactions in Victoria as the Act has been amended to deem a partner in a partnership to have beneficial ownership of each item of partnership property in the same proportion as their interest in the partnership.
Furthermore, there may be other circumstances in which the partners of a partnership would be considered to have a vested proprietary interest in partnership property, such that the acquisition of a partnership interest would nevertheless have given rise to a liability for duty under the Act prior to 14 June 2018. For example, where a partnership deed, or a subsequent partnership reconstitution deed, states that a custodian holds partnership property on bare trust for the partners, this constitutes an agreement between the partners and the custodian that the partners each have a presently existing beneficial interest in partnership property. Therefore, an acquisition of a partnership interest in such a partnership prior to 14 June 2018 would be liable for duty (i.e. the principle in Danvest would not apply).
In addition, where a partnership ceased prior to 14 June 2018 because one partner bought out the interests of the other partner or partners, the remaining partner will have acquired beneficial ownership of all the partnership assets, including any dutiable property in Victoria. In such a case, even though the partnership interests acquired are less than 100 per cent, duty would be payable on 100 per cent of all the dutiable property of the partnership. This is because, prior to 14 June 2018, the partners were considered not to have beneficial ownership of partnership assets while the partnership was in place (i.e. the principle in Danvest applied to the arrangement). This means that when the partnership ceased the remaining partner acquired 100 per cent of the beneficial ownership of all property of the partnership.
A transfer of land involving the removal or addition of one or more partners to a partnership where the partners hold the land directly is (and always was) dutiable as a transfer of dutiable property, unless an exemption applies.
With respect to the treatment of offshore interests, the particular circumstances of the matter and the nature of the partnership or entity involved will determine whether duty is payable. In some circumstances the partnership might be a company or unit trust for landholder duty purposes. In other circumstances, the partnership may be a linked entity.
Note: The amendment applies to partnerships in existence before 14 June 2018 as well as those established on or after that date. For the purposes of any objection under the Taxation Administration Act 1997, the State Revenue Office will apply the law in force at the time of the relevant dutiable transaction.