Nominating a purchaser into a contract of sale can have adverse Victorian stamp duty consequences

This article covers unintended ‘double’ stamp duty consequences which may arise when nominating a new purchaser into a contract of sale to acquire Victorian land.  The article includes:

• what it means to ‘nominate’ a purchaser;
• practical guidance of when double stamp duty could be payable; and
• tips for purchasers and advisors to reduce exposure to double duty risks.

What does it mean to ‘nominate a purchaser’?

Most Victorian land contracts allow the named purchaser to later nominate another person or entity to complete the contract and settle the purchase. This is often achieved by including ‘and/or nominee’ after the purchaser’s name. 

Purchasers often use this approach where:

• the final structure (company, trust or SMSF) is not yet established;
• tax advice is still being obtained;
• finance approvals are pending; or
• a decision is made for a related person (such as a family member) to become the owner.

While nomination is legally permissible, it does not mean the original purchaser disappears, as they legally still remain a party to the contract. For duty purposes however, the Victorian SRO looks at whether the nomination has created a sub‑sale which could result in two separate lots of stamp duty being payable.

What is ‘double duty’ and why does it arise?

Stamp duty is normally paid only once on the transfer of land to a purchaser.  It is paid by the purchaser.  However, the ‘sub‑sale’ provisions in Victoria can apply where:

• the property is contracted to one person; and
• a different person ultimately receives the transfer at settlement due to a nomination or similar arrangement; and

either:

• additional consideration is paid for that nomination; or
• land development occurs before the nomination is made (unless the price in the contract of sale already incorporates the land development and the purchaser does not participate in the land development, such as an off-the-plan contract).

If those conditions are met, the Victorian SRO will assess duty as if there have been two sales, resulting in duty on the original contract, and duty again on the nominated purchaser’s acquisition.

The two triggers for double duty

Additional consideration

Double duty can arise if the nominee (or an associate) gives additional consideration to obtain the right to complete the purchase. Even a relatively small amount will trigger a double duty liability. Importantly, duty is assessed on the full value of each transaction, not merely the additional amount.

Additional consideration includes:

• a nomination fee payable to the original purchaser;
• entering into a linked or ‘parallel’ arrangement (for example, where the original purchaser is a builder and the nominee enters into a build contract with the original purchaser); and
• any other consideration or payment.

Land development before nomination

The other trigger for double duty is land development occurring after the contract is signed but before the purchaser is nominated. ‘Land development’ is defined very broadly and does not require physical construction. Even lodging a planning application or arranging a plan of subdivision to be prepared can be sufficient. Further, it does not matter whether it is the purchaser, the vendor or even another party that undertakes the development activity.

The SRO’s current public ruling[1] confirms that land development includes activities such as:

• applying for or obtaining a planning permit;
• applying for or obtaining a building permit;
• preparing or progressing a plan of subdivision;
• requesting a planning scheme amendment; or
• doing anything that enhances the land’s value, even if the value increase is not immediately realised.

However, as noted above there is a exemption where the price being paid in the contract of sale already incorporates the land development being undertaken and the purchaser does not participate in the land development.

Common problem scenarios for purchasers

Some recurring fact patterns which we see, which cause issues in relation to the risk of double duty, include:

• an individual signs the contract personally (perhaps while a company or trust is being set-up);
• a planning consultant is engaged and lodges an application soon after signing;
• finance or tax advice later recommends a different purchasing entity; and
• a nomination is made shortly before settlement, nominating that different entity, after development steps have begun.

From a duty perspective, the original purchaser is treated as having acquired and then on-sold the property, attracting duty twice (the original purchaser is assessed for duty, and then the nominee that settles the contract is also assessed for duty).

Practical guidance for advisors

1. Ask the right questions early

When a client mentions a property purchase, it is critical to ask before the contract, not after:

• Who will ultimately own the property and will a nomination occur?
• Will any additional consideration be payable for the nomination?
• Is development intended?
• Have any permits or applications already been lodged, or are any plans of subdivision being prepared?

2. Coordinate advice

Double duty risks often arise because:

• legal, tax and town-planning advice are provided in silos, and
• early steps (like permit applications) are taken without understanding duty consequences.

Advisors should encourage clients to ensure their lawyer, accountant and planner are aligned before action is taken.

3. Avoid ‘holding’ properties without advice

Nomination should be treated as an exception, not as the default approach.  If the structure is not ready:

• delaying contract signing may be safer than relying on nomination; and
• the correct entity should sign, even if set-up is inconvenient.

Key takeaways

• Nomination is usually legally allowed but can have significant duty consequences.
• Double duty most commonly arises where land development occurs before nomination.
• ‘Land development’ is interpreted very broadly in Victoria.
• Timing, not intention, drives the duty outcome.
• Early, coordinated advice can often prevent an expensive mistake.

It is important to note that the rules around nomination differ again if the land is in another State or Territory outside of Victoria.  Advisors will need to ensure they consider the applicable rules depending on which State or Territory the relevant land is located.

What are the Cleardocs products available?

Cleardocs offer the following relevant products:

• Company Registration | Set up a new company
• Change of Trustee Unit Trust
• Change to Sole Director Company

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

• Be careful when varying a trust deed for a trust that holds property! A change in ‘beneficial ownership’ may result in transfer duty
• Overview of some things to consider when registering an Australian company
• SMSF Trustees: Why should I use a corporate trustee?

[1] DA‑064v2.