|Practice note number||CPN 014|
|Date issued||24 November 2020|
|Issued by||Cullen Smythe|
Commissioner of State Revenue
|Effective from||24 June 2020|
This practice notes clarifies what fixed to the land means for the purposes of landholder duty.
Under section 146 of the Duties Act 1997 (“the Act”), a landholder is defined as a unit trust scheme, a private company or a listed company that has land holdings in New South Wales with an unencumbered value of $2,000,000 or more. Landholder duty is calculated on the unencumbered value of all the landholdings and goods in New South Wales (subject to certain exceptions).
A landholding is an interest in land other than the estate or interest of a mortgagee, chargee or other secured creditor. Interest includes an estate or proprietary right.
An “Interest in land” as defined in the Dictionary to the Act includes a mining lease or mineral claim granted under the Mining Act 1992. The land includes anything that, under the authority of the mining lease or mineral claim (whether direct or indirect), is fixed to the land the subject of the lease or claim and that would be part of the land (as a fixture) if the lease or claim were an estate in fee simple in the land.
From 24 June 2020, land holdings also include an interest in anything fixed to the land subject to exceptions. Section 147A(1) of the Act, defines land to include anything fixed to the land whether the thing:
Sections 147A(2) and (3) of the Act provide exclusions.
Note: If an entity owns or has an interest in anything fixed to the land, the interest in the thing will be treated as an interest in land, even if the thing is owned separately from the land. “Interest” includes (among other things) a freehold interest, a leasehold interest, an easement, a mining lease or mineral claim.
Unless sections 147A(2) and (3) of the Act apply, if a thing is fixed to the land it is deemed to be land. Land includes things that are fixed to the land, regardless of whether such items would be considered fixtures at common law. Fixed to the land includes a physical thing:
Note: Things resting by their own weight can be classified as an interest in the land. For example, if the thing is expected to be on the land indefinitely, or if the cost of removal would exceed the value of the thing, it can be deemed an interest in the land.
The Chief Commissioner interprets a thing “fixed to the land” in section 147A as a thing that is more than temporarily affixed to the land. For example, anything that is fixed by means of an electric cord is not “fixed to the land” and would generally be classified as a good. Further examples are below.
XYZ Pty Ltd is acquiring 100 per cent of ABC Pty Ltd.
Neither ABC Pty Ltd nor any linked entities have freehold interest in land.
However, ABC Pty Ltd leases five properties in New South Wales.
These leases are ordinary commercial leases and have nominal unencumbered value.
ABC Pty Ltd has leasehold improvements fixed to the land with an unencumbered value of $3 million.
The unencumbered value of all the land holdings including the leasehold improvements exceeds $2 million.
XYZ Pty Ltd will be liable to landholder duty. ABC Pty Ltd also owns dutiable goods valued at $1 million. Duty is calculated on $4 million.
A Pty Ltd is the owner of land.
A Pty Ltd leases the land to B Pty Ltd
B Pty Ltd subleases the land to C Pty Ltd.
C Pty Ltd fixes things to the land as part of C Pty Ltd.’s business.
A Pty Ltd, B Pty Ltd & C Pty Ltd all have (differing) interests in the real estate.
If D Pty Ltd acquires 100 per cent of the shares in A Pty Ltd, the value of the land will include the things fixed to the land minus the value of the interest of C Pty Ltd in the things fixed to the land.
If D Pty Ltd acquires 100 per cent of the shares in B Pty Ltd, the leasehold interest as well as the things fixed to the land will form part of B’s interest in land minus the value of the interest of C Pty Ltd in the things fixed to the land.
The Chief Commissioner may be able to exercise his discretion under section 147A(3) to exclude the value of the interest in the things fixed to the land on the sale of the shares in A Pty Ltd & B Pty Ltd.
However, the Chief Commissioner will not be able to exercise his discretion under s 147A(3) if the companies are associated persons.
The things fixed to the land have an unencumbered value of $5 million. A purchase of an interest in C Pty Ltd could trigger landholder duty even if the leasehold interest has a minimal value.
Landholder duty is payable on acquisitions of things fixed to the land, regardless of whether they are common law fixtures or whether the thing is acquired separately from the land to which it is fixed. For example, where things such as pipelines are fixed to the land, landholder duty will be payable if a person acquires an interest in the company that owns the thing without acquiring an interest in the company that owns the land on which the thing is fixed. The value of the interest in land along with the value of the fixed thing will be the total value for the purposes of calculating landholder duty.
To determine if an asset is fixed to the land, the Chief Commissioner will take into consideration all the facts and circumstances.
DEF Pty Ltd purchases 90 per cent of the shares in XYZ Pty Ltd
XYZ Pty Ltd owns land and runs a business on the land.
A processing plant is affixed to the land owned by XYZ Pty Ltd.
The processing plant was sold by XYZ Pty Ltd to ABC Pty Ltd and leased by XYZ Pty Ltd.
The processing plant is fixed to the land owned by XYZ Pty Ltd although it is owned separately from the land. The value of the interest in the processing plant will be included in the value of the land owned by XYZ Pty Ltd.
If an entity owns a thing fixed to the land owned by some other person, the entity will be deemed to have an interest in that land.
PQ Pty Ltd is acquiring 60 per cent of DEF Pty Ltd.
DEF Pty Ltd is an energy company that owns natural gas pipelines valued at more than $2 million.
ABC Pty Ltd owns five hectares of rural property in New South Wales.
DEF Pty Ltd enters a long-term lease with ABC Pty Ltd to install these pipelines underground on the leased land.
The pipelines are fixed and will remain permanently in place. The leased land and the pipelines are landholdings for the purposes of the Act despite any legislation that might forestall the pipelines margining with the land.
Therefore, DEF Pty Ltd is a landholder and PQ Pty Ltd will be liable to pay landholder duty on the value of the pipelines and the interest in the leased land.
The Chief Commissioner may determine that the land does not include a thing fixed to the land if:
If a person acquires an interest in a landholder which owns the land but has no economic ownership of a thing fixed to the land, the Chief Commissioner may exercise this discretion so that duty will only apply to the unencumbered value of the land excluding the thing fixed to the land (see example 2).
If the person acquires an interest in the thing fixed to the land but does not acquire the land on which it is fixed, landholder duty will apply to both the interest in the land and the thing fixed to the land. This is because the thing fixed to the land is deemed to be land.
XYZ Pty Ltd is a rural produce company that owns land and uses it to grow crops.
ABC Pty Ltd (unassociated company) has wind turbines affixed to the land.
Although the wind turbines are owned separately from the land, they are fixed to the land owned by XYZ Pty Ltd.
If DEF Pty Ltd purchases 100 per cent of the shares in XYZ Pty Ltd, the Chief Commissioner may determine that the land does not include the wind turbines as they are owned by a person other than the person who owns the land and it is not used in connection with the land (which is used for agricultural purposes).
However, although ABC Pty Ltd does not own the land, it does have an interest in the land owned by XYZ Pty Ltd, being the wind turbines. Therefore, the value of the wind turbines would form part of ABC Pty Ltd.’s land holdings.
If DEF Pty Ltd purchases 50 per cent of the shares in ABC Pty Ltd, the landholdings will include its interest in the land owned by XYZ Pty Ltd and the wind turbines.
To establish if an entity is a landholder, the unencumbered value of it’s land and anything fixed to the land whether or not a fixture at law will be taken into account. If the unencumbered value is $2,000,000 or more then the entity is taken to be a landholder. Although, goods are not included in order to identify if an entity is a landholder, they are added to the unencumbered value of the land holdings and included in the calculation of landholder duty.
Goods are considered to be goods of the landholder if the landholder has any interest in the goods other than as a mortgagee, chargee or other secured creditor. Goods are included in the calculation of duty unless excluded.
Section 163G provides that the Chief Commissioner will disregard the value of the goods in determining the duty chargeable if the unencumbered value of all goods in New South Wales comprises not less than 90% of the total unencumbered value of all land holdings and goods in New South Wales.
Note: Goods does not include anything fixed to the land.
Section 163K of the Act excludes certain goods. Such goods are also excluded from the definition of the land under section 147A(2). The excluded goods are the following: