Amendments to Victorian Stamp Duty Rules: E-Alert January 2009

Several important changes have recently been made, and further changes are proposed to be made, to the Victorian Duties Act 2000 (the Act). Changes already implemented have:
 

• expanded the application of the sub-sale rules to fractional sub-sales; and
• amended the exemption for property moved in and out of a bare trust arrangement.

Proposed changes (not yet enacted) will:
 

• reduce the time period for payment of duty from 90 days to 14 days; and
• seek to apply duty in relation to leases involving the payment of a lease premium.

Fractional Sub-sales

Presently the Act contains rules which impose double duty to certain sub-sale arrangements. Broadly a sub-sale occurs when the party that enters 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.

The sub-sale rules as originally enacted did not adequately deal with fractional sub-sales. One 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. The changes ensure that the additional consideration in the example given is now dutiable as a separate further transfer. Changes have also been made to ensure that fractional sub-sales in circumstances of land development and options are also captured. The changes took effect on 11 December 2008. 

Bare Trust Arrangements

Presently the Act exempts from duty 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.

The amendment to sec.35 of the Act seeks to clarify the circumstances in which the exemption will operate. With effect from 11 December 2008, sec.35 of the Act will apply to an initial transfer of property to a bare trustee, the declaration of trust itself and any subsequent retransfer of the property from the trustee back to the beneficial owner.

Leases with Premiums

Lease instruments have not been subject to duty in Victoria since Chapter 5 of the Act was repealed in 2001 following the introduction of GST. The Victorian Government recently formed a view that leases, particularly longer term leases and leases involving the payment of a premium, were being used as a means of obtaining defacto ownership rights over real property. Consequently, as an anti-avoidance measure, new rules are proposed to be introduced to impose duty in the following 3 circumstances:
 

• 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;
• 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;
• 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.

The dutiable value of leases caught by the new rules will be 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. The imposition of duty on the unencumbered value of the land subject to the lease is akin to levying duty on a transfer of the ownership of the underlying land.

The new lease provisions will have collateral implications for the land rich rules in Part 2 of the Act. The landholdings of a company or trust subject to the land rich rules will include the value of any lease identified in 1-3 above.

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

Timing of Duty Liability

Currently documents and transactions that are liable for duty in Victoria must be lodged for assessment with the SRO within 90 days. This timeframe will be reduced to 14 days. No other State or Territory in Australia maintains such a short lodgement/payment rule. The new rule will take effect when the Bill is passed in 2009 (not 21 November 2008).

If you would like more information concerning this article or matters discussed in it, please do not
hesitate to contact Michael Taylor-Sands.