All Things Newz
Law \ Legal

SRO in Victoria issues draft ruling on service fees and the economic entitlement provisions – Property Taxes



To print this article, all you need is to be registered or login on Mondaq.com.

The State Revenue Office (SRO) recently issued
Draft Revenue Ruling DA-065 (Draft Ruling). This
Ruling clarifies the application of the economic entitlement
provisions in the Duties Act 2000 (Vic)
(Act) to service fees.

What is an economic entitlement?

The economic entitlement provisions in the Act trigger duty if a
person acquires an “economic entitlement” under an
arrangement made on or or after 19 June 2019 in relation to
relevant land with an unencumbered value of more than $1
million.

You will acquire an economic entitlement if you are entitled to
any one or more of the following:

  • to participate in the income, rents or profits derived from the
    land

  • to participate in the capital growth of the land

  • to participate in the proceeds of sale of the land

  • to receive any amount determined by reference to any of the
    above matters

  • to acquire any entitlement described above.

There has been considerable uncertainty as to the impact of
these provisions on common fee for service arrangements given the
breadth of the definition of economic entitlement.

Are service fees an economic entitlement?

According to the Draft Ruling, genuine service fees that are
within industry parameters and are charged by entities normally
engaged in providing those services on a full time basis are not
considered to be an economic entitlement. For instance, real estate
agent fees will not be considered as an economic entitlement
despite being calculated as a percentage of the sale price.

Some examples of service providers whose service fees are not an
economic entitlement despite being tied to proceeds associated with
land and/or its development are as follows:

  • Real estate agents;

  • Executors and Trustees of deceased estates;

  • Architects;

  • Project managers;

  • Planning consultants;

  • Private advisory firms; and

  • Lenders and financiers.

When do you need to disclose the service agreement to
the SRO?

The Draft Ruling states that if a person is providing a genuine
service in relation to land, then the service agreement does not
need to be disclosed to the Commissioner.

A person providing a genuine service in relation to land:

  • is normally engaged in a full-time capacity in providing those
    services

  • the agreed fee/rate is within industry parameters, and

  • the person is not associated to any other person who has an
    economic entitlement in relation to the land.

In cases where the service provider is associated with a person
who has an economic entitlement in relation to the land, the fee
for service must be disclosed to the SRO for assessment.

Further, where the services are provided by a special purpose
vehicle (SPV) established to provide such services
to a project, the service fee arrangement must be disclosed. This
is because whilst the SPV might be engaged on a full time basis in
providing the services, they do not routinely provide services to
third party clients.

Are Responsible entities, trustee and fund manager fees
economic entitlements?

Responsible entities, trustee and fund manager fees are not an
economic entitlement if all the following conditions are met:

  • the fees are genuine;

  • the fees are within industry parameters;

  • the fees relate to holding and maintaining property for the
    fund; and

  • the property has not been developed for the fund by a person
    associated with the responsible entity, trustee or fund manager (as
    applicable).

Interaction of landholder duty and economic entitlement
provisions

The Draft Ruling provides some interesting comments on the way
in which share and unit interests may trigger duty under the
economic entitlement provisions where such interests would not
trigger duty under the landholder rules.

An example given in the Draft Ruling concerns the issue of
special class units in a unit trust (equal to 15% of the total
units in the trust) where the return on the special class is tied
to the return from a particular property. Whilst the issue of the
units is below the 20% threshold for triggering landholder duty,
duty is levied under the economic entitlement provisions because
the return on those units is equal to 100% of the net income, rents
or profits derived from the particular property.

The Draft Ruling is open for consultation until 28 September
2022.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Madgwicks is a member
of Meritas, one of the world’s largest law firm
alliances.

POPULAR ARTICLES ON: Tax from Australia



Source link

Related posts

Clear Working Conditions And Work-life Balance In The EU: Time Is Up – Contract of Employment

Milan Fashion Week And Fashion Law Trends – The Latest Trend For Luxury Brands: Sustainability Logos – Trademark

Workplace relations changes effective 1 July 2022 – Employee Rights/ Labour Relations