The Victorian Court of Appeal recently upheld a decision from the Victorian Civil and Administrative Tribunal (VCAT) in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175 (the Oliver Hume case). This ruling, which we previously discussed in detail here, has significant implications for property funds in Victoria.

Key takeaways from the Oliver Hume case

In brief, duty obligations may arise on capital raisings by property funds in Victoria, even when individual investors are unrelated and acquire less than 20% (for unit trusts) or 50% (for companies). If these capital raisings lead to substantial changes in shareholding or unitholding, the duty may be triggered.

The Court of Appeal upheld the Commissioner of State Revenue’s interpretation of the term “associated transaction”. The focus is not on the relationship between individual investors but rather on the relationship between the acquisitions themselves. This means that even if investors are unrelated, their transactions can still be viewed as part of a single, substantial arrangement if there’s a connection or interdependence in how their interests were obtained.

What this means for property funds

The Oliver Hume case clarifies that even seemingly unrelated investors can trigger duty if their acquisitions are considered part of the same transaction or series of transactions. This broad interpretation opens up potential duty risks for property funds engaged in capital raising.

Penalty tax amnesty – take action by 31 March 2025

Following the decision, the Victorian State Revenue Office (SRO) has announced a penalty tax amnesty for voluntary disclosures of potential duty liabilities arising from capital raisings in property funds or syndicated structures. This amnesty will be available until 31 March 2025.

During this period, the Commissioner will waive all penalty tax and apply a reduced interest rate on any resulting duty liabilities. After the deadline, however, the SRO will begin a compliance program targeting capital raisings involving landholders. If liabilities are identified, penalty taxes (starting at 25%) and higher interest rates will apply.

Key risk indicators for property funds

Property funds that have raised capital under the following circumstances should review their arrangements and consider making a voluntary disclosure:

  1. Common offer terms: Each investor acquired their interest under the same offer terms, suggesting a unified purpose.
  2. Conditional and interdependent transactions: Individual acquisitions were contingent on meeting a subscription target, meaning no single acquisition could proceed independently.
  3. Timing and documentation: Investors applied to invest around the same time and under identical terms, with documentation outlining a common purpose and binding provisions.
  4. Significant ownership changes: The acquisitions significantly altered the fund’s shareholding or unitholding on the same day.

Next steps

If you are concerned about potential duty liabilities from previous capital raisings, now is the time to act. We recommend consulting your tax adviser and considering a voluntary disclosure with the SRO before the 31 March 2025 deadline to avoid higher penalty taxes and interest charges.

Co-Authored – Tax Manager Monika Lam Melbourne