Getting into a situation that involves paying "double duty" is a common mistake that can be avoided with some simple precautions.
The definition of 'land development' in the Duties Act 2000 (Vic) (the Act) makes it very easy for a "double duty" event to occur. When a nomination under a contract of sale is made after there has been land development, duty will be assessed twice. It is vitally important therefore to ensure that any nomination under a contract of sale takes place before there has been any 'land development' of the land being purchased.
What you need to know:
- A planning permit or building permit does not need to have been issued in order to satisfy the land development criteria.
- Simply lodging an application or engaging in preparations to lodge, for example the preparation of formal plans for lodgement, will be enough to be construed as land development for the purpose of section 32J of the Act.
- If a nomination is made after this has occurred, section 32J of the Act is invoked and two lots of duty will need to be paid.
Duties Act 2000 (Vic) – s32I
Surprisingly and unfortunately, our team all too often finds itself dealing with requests to nominate a subsequent person/entity to take a transfer of the land purchased after Land Development has occurred post the day of sale. This is even after clear warnings are provided to every purchaser at the beginning of a transaction.
Sections 32I and 32J of the Duties Act 2000 (Vic) (the Act) provide that:
If... a person (the vendor) enters into a contract (the sale contract) to sell or transfer the property to another person (the first purchaser); and
....(a subsequent purchaser) obtains the right (a transfer right) to have the property or any part of it transferred, on completion of the sale contract (the nomination); and
....after the sale contract is entered into, but before the property or any part of it is transferred, land development occurs in relation to the property or part; then
... Duty on a transfer to which this Division applies is not charged in respect of the transfer from the vendor to the transferee, but is charged separately and distinctly on—
- the dutiable value of the sale contract as if it had been completed by the first purchaser; and
- the dutiable value of the subsequent transaction by which the final subsequent purchaser obtained the transfer right;
Section 32J(3) then states that despite subsection (1), duty is not charged under this Division on the dutiable value of a sale contract if.... the land development did not occur until after a subsequent transaction (that is, the nomination) occurred;
What does this mean?
What this means in effect is that where a nomination under a contract of sale is made after there has been Land Development, duty will be assessed twice: First, on the transfer between the vendor and the purchaser (named in the contract) and again on the subsequent transaction between the purchaser and the nominee.
In each case, duty is assessed on the higher of the price in the contract and market value. Hence, the expression often heard, "double duty".
What catches a lot of people out is just how easy it is for this to happen. The reason for this is, broadly speaking, the definition of Land Development.
What is a Land Development?
The Act provides that:
"land development", in relation to land, means any one or more of the following:
- Preparing a plan of subdivision of the land or taking any steps to have the plan registered under the Subdivision Act 1988;
- Applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land;
- Requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land;
- Applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land;
- Doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required;
- Developing or changing the land in any other way that would lead to the enhancement of its value
It is vital to take note of the definition of Land Development and ensure that any nomination under a contract of sale takes place before there has been any 'land development'.
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. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.