Recent VCAT ruling heightens stamp duty risk in capital raisings

• A recent VCAT decision has served as an important reminder for those undertaking capital raising for funds investing in real property, including for development.

Background

• In Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2023] VCAT 634, a group of 18 ‘unrelated’ investors acquired shares in the Oliver Hume Property Funds Group (the company) following subscription under an information memorandum. The purpose of the capital raise was to raise funding to support a development project known as “Diamond Grove”.

• The company issued a total of 1.8 million shares valued at $1 per share, with individual investment parcels ranging from $50,000 to $200,000. At the time of the subscription, no duty was paid by either the company or the investors.

 The Law

• In Victoria, where a person or entity acquires a significant interest in a landholder with a total encumbered land value above $1 million, a liability to pay duty upon that acquisition may arise.  

• For the relevant acquisition be a dutiable, the interest must meet or exceed the following thresholds;

  • 20% (or greater) in a Unit Trust Scheme or;

  • 50% (or greater) in a Company

 The Decision

• Despite each investor shareholder being unrelated and individually below the threshold for landholder duty, the Commissioner successfully argued that that the subscription of shares in the company by the 18 investors were to be aggregated to make a ‘significant interest’.

• The decision appears to be based primarily on an argument that:

  • the investors were ‘acting in concert’, in that they were all investing for the purposes of an identifiable development; and

  • the minimum subscription requirement suggested that investment by one investor was effectively ‘conditional’ on another investor’s investment.

• These factors combined to infer a unit of purpose for the investors and Victorian landholder duty was assessed based on the total percentage acquired in the company by all 18 investors (99.9 per cent).

Key Takeaway

• Although likely to be appealed, this decision suggests care will be required when raising capital for real estate investments where there are minimum investment requirements, or if the investments is conditional upon achieving minimum level of subscriptions.  

• If you require assistance or wish to discuss the consequences of this decision, please contact Paul, Alasdair or Benjamin.

Paul Gray
Principal
T: 03 5225 5231 | M: 0414 195 886
E: pgray@ha.legal

Alasdair Woodford
Special Counsel
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal

Benjamin Smith
Lawyer
T: 03 5225 5262
E: bsmith@ha.legal