The Queensland Revenue Office (QRO) has responded to the Queensland Law Society’s submission outlining practical difficulties with the duty exemption in section 409 of the Duties Act 2001 (Qld) which applies to the interposition of a new parent entity above an existing landholder entity.
The QRO has provided the following informal guidance on how it may approach the issue in practice. While this more practical approach is welcomed, we recommend treating the QRO’s position with caution as it is not binding.
Background
Section 409 of the Duties Act provides an exemption from landholder duty, where a new holding company is interposed between an existing company and its shareholders. Under section 409(1)(c)(v), each shareholder of the existing company must receive consideration from the new parent company, equal to the value of its shares in the existing company.
The QRO has previously interpreted s409(1)(c)(v) strictly, requiring that the shares in the new parent entity acquired by the exchanging shareholders be exactly the same value as the shares in the existing company. In practice, this has meant that the founding share/s in the new parent company needed to be cancelled contemporaneously with the interposition, which was difficult to achieve under the relevant provisions of the Corporations Act 2001 (Cth).
The QRO’s updated position
The QRO has provided informal guidance that from 17 April 2025, the Commissioner will accept that section 409(1)(c)(v) is satisfied where the difference in value between the shares issued to the exchanging shareholder in the new parent company, and the shares in the original entity acquired by the new parent entity, is ‘nominal”.
The QRO’s shift from requiring strictly ‘equal’ value to accepting a ‘nominal’ difference seeks to remove a considerable compliance burden, and also more closely aligns the duty exemption requirements to the income tax rollover requirements which generally only require that the value of the new parent entity shares issued be ‘substantially’ the same as the value of the shares in the original entity acquired. However, the QRO is yet to provide guidance or examples for what it considers to be ‘nominal’.
Key takeaways
- The QRO’s response provides guidance on how it may interpret section 409(1)(c)(v), however this guidance is not binding, so a ruling should be obtained before proceeding in reliance on that approach.
- Ultimately, the interposition exemption may be granted where there is a ‘nominal’ difference in value. However, the meaning of ‘nominal’ poses further uncertainty for taxpayers and their advisers.
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