Good news for developers, but for how long?

Good news for developers, but for how long?

Gary Chiert outlines the complexities in stamp duty case in Victoria on 'economic entitlements' and the Commissioner’s view on development agreements.

Partner, Tax

KPMG Australia


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The first stamp duty case in Victoria on 'economic entitlements' has contradicted the Commissioner’s long held view on development agreements. This is likely to result in more litigation and, if history is any guide, there may be legislative amendments that overreach and potentially expand the duty base.

Developers and land owners commonly use project development/delivery agreements under which the developer agrees to develop land for a fee. The fee is based on a share of the proceeds from sale of the development to ultimate purchasers. Ordinarily there is no stamp duty on the arrangement.

However, in 2012 (to cover a perceived 'loophole') Victoria introduced duty on acquiring a 50 percent or more 'economic entitlement'. That concept includes a right to participate in the proceeds of sale of the land holdings of a land owner.

The Commissioner’s long held view is that:

  • an economic entitlement need only relate to a particular parcel of land (not to all land of the land owner) and
  • duty is payable on project development agreements that entitle the developer to share in 50 percent or more of proceeds of sale of the particular development. 

However, Croft J in BPG Caulfield Village Pty Ltd v Commissioner of State Revenue [2016] VSC 172 contradicted both of the Commissioner’s views. In the case, the parties entered into a project development agreement for a particular parcel of land that represented less than 12 percent of the value of all of the land owned. The court held that the developer did not acquire an economic entitlement because the development agreement did not relate to all of the land of the land owner. Also, even if the agreement was an economic entitlement, no duty was triggered because the land represented substantially less than 50 percent of all the land of the land owner.

There was an amendment to the duty legislation in 2013 that post-dated the timing of the facts in the case, but it is difficult to see that the case would have been decided differently under the amended provisions. If history is any guide the duty legislation may be amended to reflect the Commissioner’s views and in a way that overreaches and potentially broadens the duty base.

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