On 19 February 2009, the Victorian Treasurer announced that retirement villages would not be caught by proposed stamp duty changes that will impose duty on the granting, transfer, assignment and surrender of certain leases. We are yet to see the legislative amendments that will provide this relief to retirement villages.

In December 2008, we reported on the introduction of the Duties Amendment Bill 2008 (Bill) by the Victorian Government and the impact that it could have on retirement village operators ( click here to view our December update).

A media release issued shortly before the Bill was introduced advised that the Government would introduce changes to "close a loop hole" that allowed the use of complex long-term lease arrangements to escape stamp duty liability. The media release has also referred to these changes as being "anti-avoidance" measures. Despite this, the proposed changes are not limited to long-term leases and may have significant implications for all tenants in Victoria. The changes will have retrospective effect and are to apply from 21 November 2008.

Once the Bill is enacted, stamp duty will apply to the following transactions:

  • "the granting of a lease for which any consideration other than the rent reserved is paid or agreed to be paid";
  • "the transfer or assignment of a lease for which any consideration is paid or agreed to be paid" (irrespective of whether any consideration other than the rent reserved was paid on the initial grant of the lease); and
  • "the surrender of dutiable property" (including a lease of a kind referred to in the above dutiable transactions).

Following lobbying by industry bodies, including the Retirement Villages Association, the Government has recognised the "unique and special requirements of older Victorians" and agreed to introduce amendments to prevent the unintended consequences of the Bill applying to retirement homes. Although the retirement village industry can take some comfort in the knowledge that their concerns have been acknowledged, it is not clear what form the exemption will take. It is difficult to know whether proposed or current transactions will be subject to duty until the legislative amendments are tabled and passed into law.

If an exemption is not available, 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.

Although it is not clear whether the phrase "any consideration other than the rent reserved" will be construed more widely than just lease premiums, the Commissioner of State Revenue has released a draft ruling that provides some guidance regarding the interpretation of this phrase. As this ruling is currently only in draft form, it may change following consultation with stakeholders. In its current form, the draft ruling provides that "outgoings" will generally be treated as rent reserved that would not (without any further payments) give rise to a stamp duty liability. However, the draft ruling provides that the construction of the particular lease will need to be considered in each case – providing little comfort in the absence of a private ruling.

Rulings only present the Commissioner's interpretation of the actual legislation and do not have the force of law. Accordingly, it would be preferable for the legislation to clarify the phrase "any consideration other than the rent reserved" or at least provide guidance as to how it should be interpreted.

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