Landholder duty - replacing the "land-rich" model & implications for land owners

NSW is proposing to convert its existing “land-rich” provisions to a “landholder'’ model, this was announced in the NSW Government Mini-Budget on 11 November 2008.  The Government stated in the NSW mini-budget that it will undertake consultation with industry regarding the new model which will not be introduced until 1 July 2009.  The precise details of the “landholder” model to be introduced in NSW have not as yet been announced despite the fact that 1 July 2009 is fast approaching. 

Replacement of “land rich” duty

“Land rich” duty is currently imposed in NSW if a person acquires (or increases existing holding)

  • a “significant interest” in a private company or wholesale unit trust (50% or more) or
  • a private unit trust (20% or more) and
  • that entity has land in NSW with an unencumbered value of $2 million or more (land value test) and
  • 60% or more of the value of all of the assets of the entity is represented land (land proportion test). 

Currently only private unit trusts, wholesale unit trusts and private companies fall within the land rich provisions.  Where duty applies, the dealing in the company or unit trust is subject to duty as if there were a transfer of the underlying NSW land.

Under the proposed changes, with effect from 1 July 2009, the 60% land proportion test will be removed such that an entity which has NSW landholdings above a certain threshold value will fall within the “landholder” provisions.  Under the new provisions the purchase of (or increasing existing holding) a “significant interest” in any such “landholder” will attract landholder duty (at transfer duty rates, as if the land was being transferred directly).

The landholder regimes have been adopted in Western Australia, the Northern Territory, the Australian Capital Territory and (with respect to trusts) Queensland.  The NSW mini-budget states that the introduction of this model in NSW will eliminate the need for complex valuations and calculations and provide increased tax harmonisation between NSW and those other jurisdictions.

“Landholder” model

In summary, under the proposed landholder model, dealings in unlisted companies and unit trusts will potentially attract landholder duty where the company or unit trust owns (directly or indirectly) any NSW land that exceeds a minimum prescribed threshold value.  This threshold now stands at $2 million under the current NSW land-rich provisions, and there is no suggestion this will change.  However, the proposal does not provide any guidance as to what will qualify as a “significant interest”, what the relevant land value threshold will be, or which entities will qualify as “landholders”.  Therefore the full scope of the proposed amendments will not be known until draft legislation is introduced. 

Practical impact of “landholder” model

The removal of the land proportion test represents a substantial extension to the tax base, as it will increase the number of entities that are subject to duty under the proposed landholder model.  A transfer of shares in a trading company which owns the premises from which it operates, as well as non-land assets (such as goodwill, stock and trade debts) may be subject to duty at landholder rate on the full value of the shares being transferred.  It is not known at this stage whether any apportioning provisions will apply to look through to the value of underlying assets.  As an example, a large unlisted company, unlisted unit trust or wholesale unit trust with $100 million of non-land assets could be a “landholder” for NSW duty purposes if it, or a subsidiary, owns only a relatively small landholding of above the relevant threshold value, even if the value of the land is a small percentage of the value of all assets in the entity. 

These new provisions are likely to increase the compliance costs, transaction costs and due diligence which must be conducted by potential purchasers of interests in any entity which holds land in NSW.  It remains to be seen, however, what other consequential changes may be made to the land-rich provisions that may affect companies and unit trusts.

The Government has said that the landholder model will result in cost-savings for taxpayers, as once the land proportion test is removed, it will no longer be necessary for taxpayers to value non-land property for the purposes of determining whether a particular entity is subject to these rules.  However, this is likely to be of little comfort to taxpayers, given the substantial extension to the overall tax base.


The changes are proposed to come into operation from 1 July 2009, following consultation with industry.  If you are considering acquiring interests in unlisted companies or unit trusts that own or have indirect interests in NSW land, but are not currently “land-rich”, you should consider the timing of the transactions as after 1 July 2009, an unexpected stamp duty bill may arise.

Author: Raymond Lim