source: Propertyinvesting.com
01 August 2005
Double stamp duty used to be payable on “sub-sales” in Victoria where a property is transferred from a vendor to someone who was not the named purchaser in the original contract, unless an exemption was available. The entire sub-sales regime has been abolished and a completely new regime has been introduced , with some good news and some not so good news; property developers beware.
OLD REGIME
Under the old regime, double duty was payable on sub-sales, commonly known as “and/or nominee” transactions, except where:
the named purchaser was acting as agent, but only where they had a written authority to purchase the property as agent before the contract was signed. An oral agency agreement that was later reduced to writing was not sufficient.
the property was purchased in anticipation of incorporation and steps had been taken to incorporate a new company for the purpose of purchasing the property. The named purchaser or a relative also had to have a bona fide beneficial interest in the new company or its holding company at the time of the transfer.
the transferee was a body corporate and the named purchaser was a director both at the time the contract was entered into and at the time of the transfer.
the named purchaser was acting as trustee of a trust recorded in writing on or before the contract was signed. An oral declaration of trust reduced to writing later was not sufficient.
the named purchaser was a relative of the ultimate transferee or a related body corporate of the transferee both when the contract of sale was entered into and at the time of the transfer.
NEW REGIME – Good news
The good news is that the sub-sales provisions will no longer catch most transactions where the property is simply transferred to a person nominated by the named purchaser and there is no commercial arrangement that gives rise to a sub-sale. For example, if you sign a contract “and/or nominee” at an auction on Saturday and receive advice on Monday that the property should be held by a trust or company which you haven’t set up yet, you should not have to pay double duty.
So, there is now greater flexibility for us to recommend an appropriate structure for holding property and to establish that structure after a contract is signed but before the transfer takes place. However, some sub-sales that would previously have been exempt from double duty will now be caught under the new regime. Importantly, an exemption is still available for transactions involving relatives (as defined).
NEW REGIME – Bad news
The new provisions charge duty as if there were two transactions in three situations:
where the second or subsequent transfer involves additional consideration; where one of the transfers involves land development; or
where the transfer involves an option and land development.
“Consideration” includes the value of non-monetary consideration. So, a subsequent purchaser may still fall foul of the provisions even if no money changes hands.
The term “land development” is defined much more broadly than the normal usage of the term and means any one or more of the following in relation to land:
preparing a plan of subdivision of the land or taking any steps to have the plan registered;
applying for or obtaining certain permits or approvals in relation to the land;
doing anything in relation to the land for which a permit or approval under the Building Act 1993 would be required;
developing or changing the land in any other way that would enhance of its value.
So, applying for or obtaining certain permits or registering a plan of subdivision between the date of the initial contract and the date of transfer may invoke the sub-sales provisions, even though the land may not have been physically altered.
An exemption from the “land development” double duty is available where the vendor undertakes the land development under the terms of the initial contract, such as with off-the-plan sales contracts. However, the first purchaser and their associates must not undertake or participate in the land development in any way.
The use of options should be considered very carefully, as the provisions concerning the use of options are far-reaching and may catch unintended transactions. They charge double duty where:
a vendor transfers property under a put or call option to a person that was not the named purchaser under the put or call option; and
land development (as defined) occurs between the date the option is granted and the date of the transfer.
For more information:
Andrew O’Bryan, PartnerHall & Wilcox LaywersTaxation(03) 9603-3514
andrew.obryan@hallandwilcox.com.au
Rachel Bates, LawyerHall & Wilcox LaywersTaxation(03) 9603-3563
rachel.bates@hallandwilcox.com.au
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