The State Taxation Acts Amendment Act 2019 which was recently enacted has resulted in significant changes to the “economic entitlement” provisions of the Duties Act 2000.
Under the changes, a residential developer will be deemed to have acquired an ‘economic entitlement’ to any income, rent or profits generated from the land and will be subject to a duty as if they had acquired a beneficial ownership interest in the land. This is even if the transaction under which the developer secures rights to develop land in Victoria does not involve the developer taking ownership in the land that is being developed. For example, the developer may have entered into a project management agreement or joint venture agreement with the landowner to develop the land for a fee.
The impact of these changes is that a broad range of transactions relating to the development of land will be dutiable. As a result, it is likely that developers may not proceed with certain developments under a project management or joint venture arrangement with the landowner as the overall cost of such projects will significantly increase as a result of these changes.
However, service fees for third parties such as architects, project managers, real estate agents and planning consultants who provide services in connection with developments will not be considered economic entitlements.
The recent changes to the Duties Act 2000 will have wide-ranging ramifications for how developers effectively structure and manage land developments in Victoria in the future. Further, it is likely that certain projects may not proceed due to the increased cost arising from these changes, as they are deemed to be commercially unviable, particularly in a slowing property market.
If you need assistance with the economic entitlements reforms, please contact Urban Lawyers today.