As part of the Victorian State Budget, a number of stamp duty changes have been proposed, many of which have received significant media attention (including the abolition of the off the plan duty concession for investors, the abolition of stamp duty for some first home buyers, and the removal of the blanket duty exemption for transfers between spouses).
One change that is particularly relevant for property developers and builders which has received significantly less media coverage is in relation to the duty treatment of option agreements.
Previously, developers would often grant options to builders to purchase lots, with the builder then finding third party purchasers to exercise those options and enter into contracts directly with the developer (often on the basis that the end purchaser will also enter into a building contract with the builder). Assuming there was no land development undertaken by the builder prior to the exercise of the option by the purchaser, the only duty payable in relation to the transaction was the stamp duty payable by the purchaser in respect of the purchase of the land from the developer.
Parliament has now sought to amend the Duties Act so that in the above circumstances, duty will be payable separately:
a) by the builder, assessed based on the consideration that would have been payable to complete the purchase had the builder exercised the option (or the market value, whichever is the greater); and
b) by the end purchaser, assessed based on the consideration given by the purchaser to acquire the right to have the property transferred to them (or the market value, whichever is the greater).
Note that if there are additional nominations (or novations or assignments) under either the option agreement or the contract, they may also attract additional duty.
These changes are slated to come into effect the day after Royal Assent is received (which, given other changes being introduced, we expect will be from 1 July 2017) however, importantly, the changes will not apply to transfers arising from option agreements entered into prior to Royal Assent being received.
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