Landholder Duty and Business Sales in Victoria: Why the Business and the Land Are Valued Separately

When a share deal is treated like a land deal

Many Melbourne businesses are owned through a company or a unit trust, and some of those entities also own the land they trade from: a factory in Dandenong South, a warehouse in Laverton North, a medical centre in Glen Waverley, a pub with its freehold. When you buy the shares or units rather than the business assets, you have not bought land directly. Victoria's landholder provisions exist so that the duty outcome is similar either way.

The SRO says a landholder is a company or unit trust scheme, private or public, with Victorian land holdings that have an unencumbered value of $1 million or more. Landholder duty may apply when someone makes a relevant acquisition of a significant interest in it. For a private unit trust that is 20% or more, for a private company or wholesale unit trust 50% or more, and for a listed company or public unit trust 90% or more.

The thresholds and deadline at a glance

Source: SRO, Understanding landholder duty. The SRO says late payment is a tax default, and interest and penalties then apply. Aggregation of interests, associated persons and exemptions can change the outcome; your lawyer or the SRO confirms the position on your transaction.

How the duty is worked out

The SRO says landholder duty uses the same rates as land transfer duty and is based on the landholder's unencumbered Victorian land holdings. Where those holdings are valued between $1 million and $2 million, duty is phased in under a statutory formula, and a concessional rate applies to public takeovers and to conversions of private landholders.

The practical point for a buyer is that the duty base is the value of the land, not the price paid for the shares. A company that owns a $3 million warehouse and runs a business worth $2 million on top of it is a landholder, and the duty base is driven by the warehouse. The shares might sell for a figure that reflects both, less the company's debts. The land value has to be established separately from everything else the entity owns.

Why the land and the business are valued separately

The SRO's Revenue Ruling DA-060v2 deals with how land holdings are valued for landholder duty. It says the most accurate method of finding the unencumbered value of land holdings is by valuation, and that historical cost in the balance sheet is not necessarily the unencumbered value. It names who the SRO regards as a competent valuer for this: a certified practising valuer who is a member of the Australian Property Institute, or a member of the Real Estate Institute of Victoria with sworn valuer accreditation. It also says a valuation dated more than 12 months before the acquisition may be insufficient.

That is a property valuer's job. A business valuer does not value land. What a business valuation does is value everything else: the trading business, its goodwill, plant and equipment, stock and working capital, and then the shares or units after debts. Done properly, the two valuations fit together. The business is valued as if it pays a market rent for the land it uses, so the land's value is not counted again inside the business's earnings. The share price then makes sense as land plus business, less liabilities.

Who does what

The commercial and industrial property tax transition

Since 1 July 2024, Victoria has been moving commercial and industrial land from stamp duty to an annual tax on land value, the commercial and industrial property tax (CIPT). The SRO describes it as a tax progressively replacing land transfer duty and landholder duty. Properties do not enter automatically. A property enters the reform through an entry transaction, which usually happens through a qualifying dutiable transaction or a qualifying landholder transaction occurring on or after 1 July 2024, under an agreement made on or after that date.

The transaction must relate to a qualifying interest of 50% or more in the property, and the property must have a qualifying use on the day of the transaction. For landholder acquisitions the SRO uses a formula to work out the property interest acquired, and one of its examples shows an acquisition where only a 40% interest was taken to be acquired, so the property did not enter. Once a property has entered, the SRO says it can be exempt from land transfer duty and landholder duty, and CIPT becomes payable 10 years after entry.

For a business buyer, this changes the duty picture, not the business value. Whether the land in the company or trust you are buying has entered the reform, or would enter on your purchase, is a question to put to your lawyer and the SRO early.

Steps for a buyer of shares or units in a land-rich entity

1. 1.Ask the seller early for a list of every property the company or trust and its subsidiaries hold in Victoria, with titles, leases and any recent property valuation.
2. 2.Ask your lawyer whether the entity is likely to be a landholder and whether your purchase, with any associated interests, is a relevant acquisition.
3. 3.Ask whether any of the land has already entered the commercial and industrial property tax reform, or would enter on your purchase.
4. 4.Engage a property valuer for the land and a business valuer for the business and the shares or units, to the same date and on consistent assumptions about rent.
5. 5.Check the share price makes sense against land plus business less debts, and resolve any gap before settlement.
6. 6.Your lawyer lodges the landholder acquisition statement and the duty is paid within 30 days of the acquisition.

• ·Understanding landholder duty, State Revenue Office Victoria
• ·Revenue Ruling DA-060v2: landholder provisions, valuation of land holdings, State Revenue Office Victoria
• ·Commercial and industrial property tax, State Revenue Office Victoria
• ·Commercial and industrial property tax: entry into the reform, State Revenue Office Victoria

This guide explains how valuations work. It is not tax, duty or legal advice: those positions are for your accountant, lawyer or the relevant regulator.