On 2 December 2008, the Duties Amendment Bill 2008
(Bill) was introduced into the Victorian Parliament. The Bill gives
effect to the Victorian Government's recent media release
announcing that it had moved to close a loophole which allowed the
use of complex long-term lease arrangements to escape stamp duty
liability. The changes are, however, not limited to long-term
leases and may have significant implications for all tenants in
Victoria. The changes may also affect products offered by
retirement village developers.
What types of long-term leases are affected?
The definition of "lease" in the Bill is not
restricted to "long-term leases": lease is defined as
"a lease of land in Victoria or an agreement for a lease
of land in Victoria". No minimum lease term is required.
"Lease" takes its common law meaning and may therefore
include an arrangement that is called a licence but is in substance
The Bill proposes to make the following transactions
"the granting of a lease for which any consideration
other than the rent reserved is paid or agreed to be paid, either
in respect of the lease or in respect of" a right or
option to purchase the land, a right of first refusal in respect of
the land or any other arrangement by which the lessee or an
associated person obtains a right or interest in the land other
than the leasehold estate;
"the transfer or assignment of a lease for which any
consideration is paid or agreed to be paid" (irrespective
of whether a lease premium was paid on the initial grant of the
"the surrender of dutiable property"
(including a lease of a kind referred to in the above dutiable
It is not clear whether the phrase "any consideration
other than the rent reserved" will be construed more
widely than just lease premiums.
The Bill provides that where one of the above dutiable
transactions occurs, duty will be payable on the greater of the
consideration (other than the rent reserved that is paid or agreed
to be paid) and the unencumbered value of the land that is the
subject of the lease. This may be considered to be a harsh result
given the range of dutiable transactions that appear to extend
beyond the types of complex long-term lease arrangements
(effectively amounting to economic ownership of the land) referred
to in the media release.
The changes will apply to dutiable transactions occurring after
21 November 2008 (the date of the media release).
What other changes are contained in the Bill?
The Bill also reduces the time period within which taxpayers
must pay stamp duty from 3 months to 14 days after a dutiable
transaction (generally settlement) has occurred. This change was
not foreshadowed in the media release. The reduced 14 day time
period will apply to dutiable transactions occurring after the date
the Bill receives royal assent (which should not be until
Parliament resumes sitting in February 2009). Taxpayers will need
to take care to meet the new deadline otherwise interest and
penalties may be applied.
How could retirement village operators be affected by the
Retirement village operators that lease units to residents may
be affected by the Bill. Retirement village models commonly involve
a 99 year lease of a unit to a resident in return for the payment
of one or more of a premium, deposit, prepaid rent or a grant of a
loan equal to the market value of the unit. On leaving the
retirement village, the resident is entitled to repayment of the
premium, deposit, prepaid rent (for the unexpired term) or loan
less a deferred management fee.
Other models involve the resident, on leaving the retirement
village, assigning the lease to an incoming resident in
consideration for a payment representing the then market value of
the unit, however, deferred management fees are still generally
payable by both the original and new resident. A commission for
assistance with finding the incoming tenant and assigning the lease
is sometimes also payable by the original resident.
Operators of retirement villages under each model are also
commonly provided with rights to communal facilities through
long-term lease arrangements with the freehold owner.
Each of the above models involve leases that are granted for
"consideration other than the rent reserved",
assigned for "consideration" and/or surrendered and
therefore may be subject to stamp duty if the Bill is passed in its
current form. Specifically, under the Bill as currently drafted,
new retirement village tenants will incur duty on the freehold
value of the unit (even though the product is structured through a
relatively low up front payment so as to make the accommodation
We will issue a further legal update when the Bill receives
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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