Changes to Victorian Stamp Duty Rules — including proposal for only 14 days to lodge and pay

Victorian stamp duty changes already implemented have:

• expanded the application of the sub-sale rules to "fractional sub-sales" — that is, to some partial transfers, nominations etc. of contract rights; and
• amended the exemption for property moved in and out of a bare trust.

Victorian stamp duty proposed changes include:

• a significant shortening of the period in which to lodge and pay Victorian stamp duty: 90 days becomes 14. (Other states and territories remain as they are.); and
• applying duty to leases (and to transfers and surrenders of leases) for which a premium is paid.

Here is information about 2 changes, and 2 proposed changes, to Victorian stamp duty law.

Change: Duty payable on a "fractional sub-sale" — that is, on some partial transfers, nominations etc. of contract rights

Current law on sub sales

Currently the Victorian Duties Act 2000 (the Act) imposes double duty to a sub-sale arrangement. Broadly a sub-sale occurs when a party to a contract of sale for land assigns, nominates or otherwise transfers its rights under the contract to some other party so that the other party completes the acquisition. Not all sub-sales are dutiable under the Act. Only sub-sales involving additional consideration, land development and certain options are dutiable.

Current law on fractional sub sales

The sub-sale rules as originally enacted did not adequately deal with "fractional sub-sales" — that is, on some partial transfers, nominations etc. of contract rights. An example of a fractional sub-sale is where:

• A and B enter into a contract to acquire land as tenants in common in equal shares (i.e. 50/50),
• but prior to settlement A pays B additional consideration so that the eventual ownership entitlements are varied to 80% for A and 20% for B.

New law on fractional sub sales

The changes ensure that the additional consideration in the above example is now dutiable as a separate further transfer.

Changes have also been made to ensure that duty applies to fractional sub-sales in circumstances of land development and options.

The changes took effect on 11 December 2008, in Victoria only. (Other states and territories remain as they are.)

Change: Bare Trust duty exemption clarified

Current law

Currently, thanks to an exemption in the Act, duty does not apply to transfers of property in and out of a bare trust arrangement. A bare trust exists when property is transferred to a trustee/nominee without any change in the underlying beneficial ownership of the property.

There has been some doubt about the type of dealings to which the exemption applies.

New law

From 11 December 2008, the exemption applies in Victoria:

• to an initial transfer of property to a bare trustee;
• to the declaration of trust itself; and
• to any subsequent retransfer of the property from the trustee back to the beneficial owner.

Proposed: Leases with premiums assessable for duty — effectively as if they were a transfer of land

Current law

Except for leases that have a covenant for future sale, lease instruments have not been subject to duty in Victoria since Chapter 5 of the Act was repealed in 2001 after the introduction of GST.

The issue

The Victorian Government believes leases have been used to obtain defacto ownership rights over real property, without paying duty. The concerns were particularly acute in the case of:

• longer term leases and
• leases involving the payment of a premium.

The proposed changes

As an anti-avoidance measure, new rules are proposed to impose duty:

• 1. on the grant of a lease for which any consideration other than market rent is paid or agreed to be paid either in respect of the lease or in respect of other rights, options or arrangements;
• 2. on the transfer or assignment of any lease for which any consideration other than rent reserved is paid or agreed to be paid either in respect of the lease itself or in respect of other rights, options or arrangements; and
• 3. on the surrender of any lease which embodies a premium.

(The new rules are not intended to apply to normal commercial leases for which market rent is payable and no premium is involved.)

Duty will be calculated on the greater of:

• any consideration paid which is not market rent; and
• the unencumbered value of the land (not the lease) that is subject to the lease.

Charging duty on the unencumbered value of the land being leased has the same effect as charging duty on a transfer of the ownership of that land.

(The proposed changes are to Victorian law only.)

Implications for companies or trusts that are "land rich"

The value of any lease to which duty applies under the changes may need to be included in the landholdings of a company or trust under the land rich rules in the Act.

Timing?

The new rules are still in Bill form but will apply retrospectively from 21 November 2008 when passed.

Proposed: Shortening of period in which to lodge and pay Victorian stamp duty

The Victorian government has proposed to reduce the period in which documents must be lodged and duty paid. Currently, the period is 90 days. The proposal is to reduce the period to 14 days.

The new rule will take effect when the Bill is passed in 2009.

No other State or Territory in Australia maintains such a short lodgement/payment rule. The proposed changes are to Victorian law only.

More Information

If you would like more information , please contact Maddocks on 03 9288 0555.