Double Duty and Land Development

The Victorian Government can assess double duty on a transaction where the purchaser named in the contract of sale is different to the person to whom the property is ultimately transferred, unless an exemption applies.

If a purchaser and the subsequent purchaser do not satisfy the conditions for the exemption, duty will be calculated on the value of the property in the contract of sale between the vendor and the purchaser and again, on the transfer to the subsequent purchaser.

The most common situation where double duty applies is where a purchaser signs a contract “and/or nominee”.

Double duty will be payable if the following criteria is met.

  1. The vendor enters into a contract of sale to sell or transfer the property to another person (Purchaser).
  2. A person other than the Purchaser obtains the right to have the property or any part of it transferred, on completion of the contract of sale (Subsequent Purchaser).
  3. After the contract of sale is entered into, but before the property or any part of it is transferred to the Subsequent Purchaser, land development occurs in relation to the property or part of it.
  4. The vendor transfers the property or any part of it to a Subsequent Purchaser.

For the purposes of the legislation it is immaterial that a Subsequent Purchaser obtains a right to have the property or any part of it transferred to it from the Purchaser or from another subsequent purchaser. Each assignment, novation or nomination by which a subsequent purchaser obtains a right to have the property or any part of it transfer to it, is a subsequent transaction that may be subject to duty.

Land development is the key element that triggers the double duty provision. The term “Iand development” is defined broadly to mean anyone or more of the following in relation to land:

  • Preparing a plan of subdivision or taking steps to have it registered under the Subdivision Act 1988 (Vic);
  • Applying for or obtaining a planning permit under the Planning and Environment Act 1987 (Vic);
  • Applying for or obtaining a permit or approval under the Building Act 1993 (Vic) or approval;
  • Doing anything on the land for which a building permit or approval would be required; and
  • Developing or changing the land in any way which would increase or enhance its value.
    Note: Applying for or obtaining a permit or the registering of a plan of subdivision is included in the definition of land development even though the land may not have been physically altered.

If land developments occurs, double duty will not be payable if:

  • The consideration given or agreed to be given by the Purchaser under the contract of sale includes consideration for the land development; or
  • The land development did not occur until after a subsequent transaction occurred.

In order to avoid this risk of double duty where land development is contemplated after the contract of sale is executed, the nomination of a Subsequent Purchaser must occur prior to any land development occurring.

In order to avoid double duty where land development is contemplated, we recommended that purchasers consult with us before signing a contract of sale.

Published: 26 July 2016

 

The information in this article is general in nature and is not to be relied upon as legal advice. As always, we recommend you seek thorough legal advice to consider your own circumstances and determine whether the information contained in this article is applicable to you.  This article is current as at the date of publishing but will not be updated as circumstances change.