In February 2009 the NSW Chief Commissioner issued a ruling on aggregation of dutiable transaction under section 25 of the Duties Act 1997 (NSW).
The aggregation provisions of section 25 were enacted to enable duty to be assessed on a transaction even where parts of the transaction are comprised in separate documents or submitted as apparently distinct transactions. Section 25 of the Act effected this by aggregating multiple dutiable transactions that are substantially one arrangement.
The ruling outlines the manner in which section 25 will be applied and focuses on the circumstances under section 25(1)(c) where two or more transactions are considered to constitute "one arrangement".
The ruling primarily focuses on transactions over real property and is a timely reminder of the need to ensure that sufficient information is provided to the State Revenue Office when a deal comprises more than one document or transaction.
When does aggregation occur?
Briefly, dutiable transactions will be aggregated where:
- they occur within 12 months;
- the transferor is the same or the transferors are associated persons;
- the transferee is the same or the transferees are associated persons; and
- the transactions together form, evidence or give effect to or arise from what is substantially, one arrangement relating to all of the items or parts of, or interests in the dutiable property.
Relevantly, the Ruling provides that:
- where one "arrangement" comprises more than 2 dutiable transactions occurring on different days, the 12 month period will commence from the date of the first dutiable transaction. Accordingly if separate items of dutiable property or separate parts of or interests in dutiable property are transferred over a period of longer than 12 months, only those transactions occurring within the first 12 months would be aggregated with the initial transaction;
- if there are more than 2 transferors under the respective dutiable transactions all of them must be associated persons;
- if there are more than 2 different transferees under the respective dutiable transactions all of them must be associated persons. By way of example the ruling provides that if the respective purchasers under 2 agreements for sale of land are a husband and wife under the first agreement and their son and daughter-in-law under the second agreement, the agreements cannot be aggregated because not all the transferees are associated persons (i.e. the daughter-in-law is not associated with her husband's parents);
- When considering whether dutiable transactions together form evidence of or give effect to what is substantially one arrangement that determination is made at the time of the dutiable transactions are entered into. For example, dutiable transactions might finish up as one arrangement even though they did not commence that way and "one arrangement" can include a series of transactions over a period of time.
Examples of "one arrangement"
Examples of transactions that would constitute one arrangement are provided and include:
- where the agreements contain an interdependency clause;
- agreements that relate to fractional interests in one property;
- agreements that relate to freehold property and a business conducted on that property;
- where the agreements are pursuant to antecedent options over the properties;
- where the properties are sold subject to a development application or approval;
- where completion is conditional upon the purchaser obtaining development approval in relation to the properties;
- where the purchaser has lodged a development application in relation to the properties prior to entering into the agreements;
- agreements that relate to separate assets of a single going concern business;
- the purchase of all of the lots in a subdivision;
- the purchase of all units in a home unit block;
- the purchase of all land and other assets of a primary production business (whether the primary production land is in the same title or different titles).
Examples which are not "one arrangement"
The following examples are provided as not being considered to constitute one arrangement:
- an exchange of properties between associated persons;
- the purchase of separate lots at auction (if, however, the purchase of one was dependent upon the purchase of the other it would be treated as one arrangement);
- the acquisition of single lots in a new strata plan or subdivision by associated persons where none of the factors set out above are present;
- where the only factor connecting the agreements other than satisfying the first criteria of section 25 of the Act is:
- a development application relating to the properties lodged by the purchaser after execution of the agreements (except where completion of the agreements is conditional upon the purchaser obtaining development approval); or
- a single loan or facility agreement or mortgage; or
- payment of a single deposit.
Given the significant revenue shortfall in the NSW State Budget owing to the current economic climate it is considered that the ruling is a timely and pointed reminder to ensure that full details of transactions over separate items of dutiable property are provided so that the appropriate disclosures can be made to the Chief Commissioner.
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.