Victorian landholder duty and business-with-land deals: the business and share values, done properly.

Where a business valuation fits in Victorian duty

The State Revenue Office says the Duties Act does not charge duty separately on the sale of a business, and a transfer of shares or units has not been dutiable in Victoria since 1 July 2002. So most business sales carry no duty on the goodwill. Duty enters through land. It comes in two ways that need business values: a landholder acquisition, where shares or units in a company or trust holding Victorian land are bought, and a sale of a business together with the land it trades from. In both cases the SRO wants the land valued by a property valuer. The business valuation is what supports everything on the other side of that line.

Landholder duty: when a share deal is really a land deal

Under the Duties Act 2000, a company or unit trust is a landholder if its Victorian land holdings are worth $1 million or more (section 71). Duty can apply when someone acquires a significant interest in it: 20% or more of a private unit trust, 50% or more of a private company or wholesale unit trust, or 90% or more of a listed company or public unit trust (section 79). The acquisition statement, Duties Form 58, is due with the SRO within 30 days, and the duty within the same time. For a private landholder the duty is worked out on the unencumbered value of all its Victorian land holdings, including fixtures, multiplied by the share acquired (section 86). Goods are not part of that base. The SRO's ruling DA-060v2 says book value is not necessarily the land's unencumbered value and that a valuation is the most accurate method, from an API certified practising valuer or an REIV sworn valuer. That is the property valuer's job. Ours is the shares or units and the rest of the entity: the trading business, the goodwill, the plant, the debts. Form 58 also asks for the financial statements and fixed asset register, and the price paid for the shares has to make sense next to the land figure. A business valuation shows how the two fit together.

A business sold with its land

When a Melbourne business is sold together with the freehold, the land and any goods sold with it are dutiable; goodwill and most intangibles are not, and trading stock is excluded from dutiable goods. The SRO's ruling DA-029 points out that the split of the price in the contract may reflect accounting or other reasons rather than the land's value, and it requires a valuation of the land where land and business together, goods included, cost more than $1 million, where the business changed hands within 12 months either side of the land, or where the parties are associated. That land valuation must come from an API certified practising valuer or an REIV sworn valuer and must state that the effect of the business on the land's value was taken into account. For the business side, the SRO asks for the sale of business agreement with a breakdown of what was paid for plant and equipment and for goodwill, and the asset register. We value the business, the goodwill and the plant so that breakdown is supported rather than chosen.

Goodwill next to a specialised property

The SRO has said plainly how it looks at goodwill beside a highly specialised asset, such as plant fixed to the land. Where a business earns mainly from those assets, a large gap between the enterprise value and the asset value may suggest the assets were undervalued, and properly valued goodwill in that setting is usually small. It may ask for the source and calculation of the goodwill. So the goodwill figure in a landholder or business-with-land deal needs to be built from the business's own evidence, and reconciled with the land and plant values, not left as whatever is left over.

Commercial and industrial property tax

Since 1 July 2024, Victoria has been moving commercial and industrial land from duty to an annual commercial and industrial property tax. A property enters the reform after an entry transaction: broadly, a qualifying dutiable or landholder transaction, on or after 1 July 2024, of an interest of 50% or more in a property with a qualifying use. The SRO says properties that have entered can be exempt from land transfer duty and landholder duty, and the annual tax is payable 10 years after entry. Whether land owned by the company or trust you are buying into has entered, or will enter, changes the duty picture, so ask your lawyer or the SRO early. It does not change how we value the business.

If the SRO questions the figures

The SRO reviews valuations to check that the basis, the reasoning and the value are reasonable for duty. Where it has asked for a valuation and none is provided, its ruling says it may assess the duty by estimate. A review or an objection is decided on the evidence on file, so the business valuation sets out its method, its evidence and why the goodwill and other figures sit where they do. Where the SRO has already put forward its own figure for the business or shares, we can review it and report honestly on where it is strong and where it is not. We prepare valuations only: we are not duty, tax or legal advisers, and nobody can promise how the SRO will decide. Your lawyer or accountant runs any objection.

Documents we need

• ·The share or unit sale agreement, or the contract of sale and sale of business agreement, including any price split
• ·Financial statements for the last three to five years, and management accounts for the year to date
• ·The fixed asset register and depreciation schedule
• ·The share or unit register and a structure diagram, including any linked entities
• ·Title details, leases, current rate notices and any property valuation already obtained
• ·Any SRO correspondence on the matter

Fees

A landholder acquisition that has already happened is valued at its acquisition date, which counts as a past date. Business Valuations Melbourne's fees are set by the annual turnover of the business: $1,495 + GST under $2 million, $2,495 + GST from $2 million to $3 million, $3,495 + GST from $3 million to $10 million, and a written quote above $10 million. A small-business report arrives in 2 business days and a medium or large report in 3 business days; above $10 million we agree the delivery date before work begins. Delivery time starts once payment and all required information have been received. Each extra entity is +$795 and each past valuation date is +$495, both agreed at engagement. Everyone pays the same published fee, and it never moves with the value we reach.

• ·Understanding landholder duty, State Revenue Office Victoria
• ·Section 83 landholder acquisition statement (Duties Form 58), State Revenue Office Victoria
• ·Revenue Ruling DA-060v2: landholder provisions, valuation of land holdings, State Revenue Office Victoria
• ·Revenue Ruling DA-029: transfers of land and business, State Revenue Office Victoria
• ·Evidentiary requirements: transfer of land and business and/or goods, State Revenue Office Victoria
• ·Valuation of land for duty purposes, 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
• ·Duties Act 2000 (Vic), authorised version (ss 7(3A), 10, 20, 71, 79, 83, 86), Victorian Legislation