Victoria SRO Ruling Alert: Sub-Sale Duty Update

The State Revenue Office of Victoria (SRO) has announced today that Revenue Ruling DA-064v2 (Ruling) has been published, revising some aspects of Revenue Ruling DA-064 (Former Ruling).

The Ruling further clarifies the SRO’s interpretation of the activities taken by the Commissioner to constitute land development under the sub-sale duty provisions.

While the sub-sale duty regime was introduced as an anti-avoidance measure to prevent land transfer duty from being circumvented when the initial purchaser on-sells to a third party, more often than not, sub-sale duty negatively impacts related parties who are unaware that double-duty could apply through the nomination process if a sub-sale occurs.

Ruling Revisions

The revisions in the Ruling further clarifies the SRO’s interpretation of the meaning of land development under the following limbs:

1. Limb (a) – Preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act 1988.
2. Limb (c) – Requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land.

While the revisions do further clarify the SRO’s interpretation of limbs (a) and (c) of the meaning of land development, the revisions of themselves are relatively minor.

We highlight in summary how the sub-sale duty regime applies and key matters to take note of.

Sub-Sale Duty Regime

There are 2 broad categories under which sub-sale duty can be triggered, namely:

1. Transfers (including resulting from options) involving additional consideration; and
2. Transfers (including resulting from options) involving land development.

Additional Consideration Category

Sub-sale duty under the additional consideration category is triggered if the subsequent purchaser or associate of the subsequent purchaser provides consideration that exceeds the consideration given/agreed to be given by the first purchaser to the vendor under the sale contract.

The additional consideration category is also triggered if a subsequent purchaser or associate of the subsequent purchaser enters into a “parallel arrangement” within 12 months after the subsequent purchaser obtains a transfer right under the sale contract.

Land Development Category

The land development category of the sub-sale duty regime is triggered if land development takes place anytime after the contract is entered into and before settlement of the property takes place.

Land development is broadly defined to include any one or more of the following:

(a)   preparing a plan of subdivision of the land or taking any steps to have the plan registered under the Subdivision Act 1988;

(b)   applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land;

(c)   requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land;

(d)   applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land;

(e)   doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required;

(f)   developing or changing the land in any other way that would lead to the enhancement of its value.

How To Ensure Two Lots of Duty Not Imposed on The One Land Transfer

Nominations or other arrangements (eg. novation, assignment) where the initial purchaser does not follow through with being the ultimate purchaser of property is not uncommon in property dealings, especially where property development and property investment is envisaged.

Sub-sale duty, particularly in relation to the land development category, does not automatically apply when there is a subsequent purchaser and there are steps, if timed correctly, that could ensure one of the exceptions/exemptions to sub-sale duty applies.

Therefore, prior to effecting a nomination, assignment or novation, it is imperative to obtain legal advice on whether such arrangements will trigger sub-sale duty; which if triggered, will result in two lots of land transfer duty being imposed on the one transfer of land.

Our State Taxation Lawyers are ready to provide you with expert sub-sale duty advice and to guide you in the nomination/novation/assignment processes, including if you are been investigated or have been issued with a sub-sale duty assessment by the SRO.

Speak to one of our state taxation lawyers today for further information on 1300 907 335 or complete an online form or send an email to [email protected] and we will respond promptly.

About The Author - Thomas Abraham

Thomas Abraham is an accomplished senior lawyer with expertise in state taxation advice and litigation. His extensive background and experience make him an invaluable asset to our...