If you are considering purchasing property for the purposes of development and you intend to nominate a purchaser after execution of the Contract of Sale, it is crucial that you make the nomination prior to conducting any ‘land development’.
Regularly, we see clients who sign a Contract of Sale in their personal name because they have not yet set up the structure or special purpose vehicle with which they wish to complete the development through, with the intention of nominating that entity prior to settlement.
Under the Duties Act 2000 (Vic), a sub-sale will be deemed to have occurred and duty (previously known as stamp duty) will be payable when:
- You enter into a Contract of Sale to purchase a property.
- After the day of sale (date that both parties sign the Contract), you nominate a new purchaser to substitute the original purchaser to complete the purchase of the property under the Contract of Sale.
- Between the date of sale and the date of the nomination, ‘land development’ takes place.
- The property is transferred to the new nominated purchaser.
As a consequence of this sub-sale, duty will be assessed twice, as follows:
- Duty on the Contract of Sale as if the property had been transferred to the original purchaser; and
- Duty on the Contract of Sale under which the property was transferred to the nominated purchaser.
‘Land development’ is defined broadly as:
- The preparation of a plan of subdivision or taking any steps to have a plan of subdivision registered;
- Obtaining or applying for a planning permit with respect to the development or use of the land;
- Applying for a planning authority to prepare an amendment to a planning scheme which would impact the land;
- Obtaining or applying for a permit or approval pursuant to the Building Act 1993 (Vic);
- Doing anything in relation to the land which would require a permit or approval under the Building Act 1993 (Vic); or
- Developing or changing the land in any other way which would result in an increase of the value of the land.
Importantly, it is irrelevant which party (vendor or purchaser) undertakes the land development, double duty will still apply in such circumstances.
Double duty will not be charged in some circumstances for example, if the Contract contemplates land development and the consideration for that development has already been included (such as an off-the-plan Contract) or, where the land development occurs after the nomination has already taken place.
Double duty will also be applicable in circumstances where a subsequent purchaser obtains the rights to purchase the property prior to settlement for additional consideration than that originally agreed with the original purchaser under the Contract of Sale.
If you are purchasing land with the intention of developing it and wish to nominate a new purchaser to complete the purchase, you should seek legal advice before undertaking any land development and before nominating to ensure that double duty is not imposed and your best interests are protected.