Sub-sales and nominations related to property purchases can be complex. An important component of such a property purchase is the impact on stamp duty. When certain criteria are triggered, both the first purchaser and the subsequent purchaser (through a sub-sale or nomination) may be required to pay stamp duty.
What is a sub-sale when purchasing property?
A sub-sale is when a vendor enters into a contract of sale with a purchaser, and then prior to settlement, the purchaser then transfers their right to purchase the property under the Contract of Sale to a subsequent purchaser (either individual or entity). In some circumstances, the State Revenue Office will treat this sub-sale as a dutiable transaction, and stamp duty will be payable by the first purchaser and/or the subsequent purchaser.
What is a nomination under a Contract of Sale?
A nomination may occur under the Contract of Sale where a purchaser nominates another individual or entity as the nominated purchaser under the Contract of Sale. In some circumstances, the State Revenue Office will treat this nomination as a dutiable transaction, and stamp duty will be payable by the first purchaser and/or the subsequent nominated purchaser.
When will double duty be triggered?
For both sub-sales and nominations, double duty will be triggered where:
- the subsequent purchaser or nominated purchaser pays additional consideration (a higher purchaser price) than the original purchaser under the contract.
- land development has occurred on the property.
The above circumstances will trigger a double duty and the nominated purchaser or subsequent purchaser will be liable to pay the second amount of stamp duty.
When does “land development” occur?
Land development occurs when the vendor enters into a Contract of Sale to sell the property to the first purchaser, and before settlement of the Contract of Sale, the first purchaser nominates or transfers their right to the property to a subsequent purchaser.
In the time between the signing of the Contract of Sale by the first purchaser and the nomination or transfer to the nominated purchaser or subsequent purchaser, if during this time the first purchaser’s activities on the property equate to “land development” under s3(1) Duties Act 2000 (Vic), then “land development” is deemed to have occurred and double duty is triggered. Both the first purchaser and/or the subsequent purchaser will be required to pay stamp duty.
What constitutes land development?
The Duties Act 2000 (Vic) defines the term land development to include the following:
- Preparing a plan of subdivision or taking steps to have a plan registered under the Subdivision Act 1998;
- Applying for or obtaining a permit under the Planning and Environment Act 1987;
- Requesting a planning authority to prepare an amendment to a planning scheme affecting the land;
- Applying for or obtaining a permit or approval under the Building Act 1993 relating to the land;
- Doing anything in relation to the land for which a permit or approval would be required above;
- Developing and changing the land in any other way that would lead to the enhancement of its value.
Purchasers should carefully note sub-paragraph (f) above because this may include a number of things, including but not limited to the clearing of the property and removal of trees. The State Revenue Office is interpreting the definition of “land development” broadly.
Common purchaser scenario triggering a double duty event
A common scenario where the above double duty is triggered is when a purchaser makes an application for a planning permit after signing a Contract of Sale of land and before nominating a new purchaser.
Under this scenario, the planning permit application is considered as land development occurring to the property. If the purchaser then decides to nominate a new purchaser, this will trigger a sub-sale and the nominated purchaser will then become liable for a double duty payment to the State Revenue Office.
In this situation, the purchaser may have been able to avoid the double duty if they did not start the application for a planning permit until after the nomination of the new purchaser had taken effect.
Get help from a property lawyer
It’s crucial to be aware of the duty implications that could arise with timing of lodging any planning applications and other land development (done by the purchaser or vendor) and nominations.
At David Davis, we are highly experienced in all aspects of property law. Consulting with a property lawyer before any land development can help you avoid ending up paying double duty.