Double Stamp Duty – Land Developments and Nominations
It is common practice for a purchaser of real property to sign a Contract of Sale expectant on nominating a subsequent purchaser before settlement.
Purchasers, developers and investors should be aware however that some nominations attract additional duty (Double Duty) if the subsequent transaction (nomination) is deemed to be a sub-sale under the Duties Act 2000 (Vic) (the Act).
When is Double Duty imposed?
Generally, Double Duty may be imposed if one of the following occurs after a Contact of Sale is first entered:
- Additional Consideration – There is a nomination whereby a subsequent purchaser agrees to pay additional consideration to purchase the property; or
- Land Development – There is ‘land development’ before a nomination occurs; or
- Options – An option is granted where additional consideration is agreed to be paid or a land development occurs before transfer.
Only one of the above needs to apply before Double is Duty triggered. These also apply for each subsequent nomination, and ‘double duty’ can in fact be multiple lots of duties imposed for multiple nominations.
Whether Double Duty will be imposed will depend on the specific circumstance and timing of certain relevant events in the context of the dealing.
Land development is not just land development
If a ‘land development’ activity occurs in relation to the property before a nomination, there may be Double Duty imposed.
The question is, what constitutes a ‘land development’? This question has been of substantial interest in the legal community and property development industry.
While this may appear straight forward, the definition of ‘land development’ can be interpreted quite broadly and beyond its ordinary meaning. You may be undertaking ‘land development’ activities much earlier in the process than you expect.
Generally, ‘land development’ is the process of altering the state and/or use of land.
However, ‘land development’ can include one or more of the following (without limitation):
- Preparing a plan of subdivision of land or taking any steps to have a plan registered;
- Applying for or obtaining a planning permit;
- Requesting a planning authority to prepare an amendment to a planning scheme that would affect the land;
- Applying for or obtaining a building permit or approval;
- Doing anything in relation to the land for which such a permit or approval is required; and / or
- Developing or changing the land in any other way that would lead to the enhancement of its value.
Within each of these broad scenarios however, the specific action taken will determine whether ‘land development’ has in fact been undertaken. For example, engaging professional surveyors to undertake surveys of the property may be considered ‘land development’ activities, but general and preliminary inquiries about the process for preparing a plan of subdivision may not be.
Each scenario should be assessed on their own facts, circumstances and context.
Indeed, timing is key, as there may be some activities undertaken which constitute a Double Duty event but cannot be reversed to avoid Double Duty for a nomination. Given the potentially substantial consequences of a party’s failure to identify a Double Duty event, it is important to consult one of our experienced lawyers before entering a Contract of Sale or Option.