The State Revenue Legislation Further Amendment Bill 2014 received royal assent and came into effect on 23 October 2014, amending amongst other legislation the Duties Act 1997. The amendments have significant implications for how stamp duty is assessed on assignments, novations, nominations and other transfers of options in NSW.
Option agreements are widely used by developers and other property industry stakeholders in transactions for the acquisition and sale of land, particularly to defer stamp duty and to otherwise manage the tax consequences of their transactions.
In short, the amendments have the effect that:
- transfers (including novations, assignments and nominations) of any option that includes an option to purchase land will be subject to duty;
- the amount of duty payable by the transferee on the transfer or assignment of an option to purchase land will be the consideration for the transfer or assignment (i.e. a nomination fee or assignment fee payable by the transferee) plus ad valorem duty on the value of the underlying land; and
- purchasers of land under a contract for sale that arises as a consequence of the exercise of a call option (whether it was a Call Option or the call component of a Put and Call Option) will receive a credit for duty paid by the transferee on the transfer or assignment of the option when stamping the contract for sale.
How does this affect Call Options?
Before the latest round of amendments transfers of or nominations under Call Options were not dutiable transactions unless they formed part of a Put and Call Option. These transactions will now be caught by the new Section 9B and subject to duty payable by the transferee if the transferee subsequently transfers or nominates under the Call Option.
How does this affect Put and Call Options?
While transfers and nominations under a Put and Call Option had previously created a stamp duty liability for the transferor of the Put and Call Option, the transferee will now also have a stamp duty liability.
Under the amendments:
- The transfer or nomination under a Put and Call Option will attract duty on the part of the transferee under Section 9B of the Act; and
- The transferor under a Put and Call Option will be liable for "call option assignment duty" under Section 107 of the Act.
In effect, the transfer or nomination of a Put and Call Option is treated as an effective sale of the property, and is dutiable in the hands of the transferor in the same way an on-sale of dutiable property would. Developers, industry stakeholders and other parties dealing with options to purchase land will need to keep the above changes in mind when structuring and costing their projects or selling their option to a nominee.
Stamp Duty on Development Agreements
In December, the High Court handed down its decision in the matter of Commissioner for State Revenue v Lend Lease Development Pty Ltd & Ors  HCA 51. The decision has emphasised the importance of clearly identifying and establishing the whole consideration moving the sale of the dutiable property under a development agreement (usually being land) and the consideration attributable to non-dutiable aspect of the transaction, including in circumstances where the transaction is completed through a series of inter-related contracts. As all state and territory duties acts are drafted on substantially similar terms, this decision will have implications in every Australian jurisdiction.
Summary of Relevant Details
Lend Lease entered into a development agreement and various supplementary agreements with VicUrban for the staged development and sale of a particular site. Under the development agreement, the land was transferred to Lend Lease, who was then to develop and sell the land and remit a portion of the proceeds of sale back to VicUrban. Lend Lease is also required to pay VicUrban a fixed amount on the transfer of title to each stage of the land release. Lend Lease was further to fund and install a number of pieces of artwork to be erected on the land, as well as contribute to various infrastructure works on the land and surrounding areas exterior to the land. The development agreement also provided for various other payments to be made by Lend Lease to VicUrban in respect of the transaction.
Lend Lease submitted that the consideration for the dutiable transaction (being the transfer of the stages of the land) was only the fixed payment due in respect of the release of each stage of the land. The Commissioner for State Revenue argued that a broader interpretation of 'consideration' be adopted when assessing duty payable in respect of the development agreement.
High Court's Judgment
The High Court determined that the correct interpretation of 'consideration' for the purpose of assessment of duty should take account not just of the amount designated in the development agreement as being consideration for each stage of the land, but instead the consideration moving the dutiable transaction as a whole.
The High Court deemed that the consideration payable for the transfer of the land and the consideration payable in part satisfaction of Lend Lease's other obligations under the development agreement formed part of one single indivisible transaction, and that it was only if Lend Lease complied with each of its obligations to make contributions under the development agreement that VicUrban was willing to transfer the land to Lend Lease.
It was therefore determined that the payments made in respect of the infrastructure works, the artworks and various other payments due under the transaction documents were the consideration payable by Lend Lease in respect of the dutiable transaction, and that duty should be assessed on the cumulative sums of these amounts.
What does this mean for the stamp duty treatment of development agreements?
As a minimum, developers and other stakeholders should take care to ensure that the consideration payable under development agreements and agreements interrelated with development agreements in respect of dutiable property is clearly defined and separated from consideration payable in respect of non-dutiable aspects of the transaction.
It should be noted that regardless of whether interdependent obligations are imposed by one document or a series of interrelated documents, it is possible that the NSW Office of State Revenue or equivalent interstate body will deem the scheme created by the interrelated contracts as one indivisible transaction and may as such consider the total consideration payable under the development agreement as a whole to be the actual consideration moving the transfer of the dutiable property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.