Changes to the sub-sale provisions of the Duties Act 2000 are aimed at 'removing unintended outcomes and better aligning the provisions with the underlying policy objectives'. The changes do not address other issues of concern to taxpayers or reduce the complexity of the provisions.
The State Taxation Acts Further Amendment Act 2008 (the Act), which was assented to on 11 December 2008, amends the provisions of Part 4A of Chapter 2 of the Duties Act 2000 (Vic) (Duties Act) that impose duty on transactions considered to be 'sub-sales' of land.
In broad terms, the sub-sale provisions impose additional duty on a transfer of land where a person other than the purchaser under the sale contract obtains a right to take a transfer of the land on completion of the contract and additional consideration is given for the right or land development occurs on the land.
Additional duty is also imposed on a transfer of land resulting from the exercise of an option where a person other than the grantee of the option obtains a right to enter into a sale contract or to take a transfer of the land and land development occurs on the land.
The person (subsequent purchaser) may obtain the right to take a transfer (transfer right) by way of assignment, nomination, novation or other arrangement (subsequent transaction).
The Act makes changes with reference to the following:
- Sub-sales involving both additional consideration and land development
Where additional consideration is paid and land development occurs before completion of the sale contract, additional duty was only imposed in respect of the land development. The changes impose the duty in respect of the additional consideration. This change purports to reinstate the underlying policy of Part 4A that additional consideration is the principal indicator of a sub-sale.
- Exception for sub-sales involving land development
Under a current exception, additional duty is not imposed on sub-sales involving land development if 'the land development did not occur at any time at which the subsequent purchaser held a transfer right'. This exception results in no duty imposed where the land development occurs before the subsequent purchaser obtains a transfer right. The changes address this gap by ensuring that the exception does not apply to the last or only subsequent transaction and that the exception is available only where the land development did not occur before the subsequent purchaser obtained a transfer right.
- Exemption for transactions involving sub-sales between relatives
No additional duty was imposed in respect of a sale contract or option where the first purchaser is a relative of the vendor or in respect of a subsequent transaction where the subsequent purchaser is a relative of the first purchaser. The new provision remedies this exemption by ensuring that the exemption applies to relatives of the first purchaser and by shifting the obligation to pay the primary duty to the last or only subsequent purchaser.
- Duty to be imposed on 'fractional' sub-sales
The amendments also impose additional duty on partial sub-sales to the extent of the interest obtained. Where, by a subsequent transaction, a person obtains an increase in its transfer right or obtains a transfer right while another retains its transfer right, the person will be a subsequent purchaser in relation to that subsequent transaction to the extent of the increase of the right or the transfer right obtained.
The new provisions apply to a transfer resulting from a contract entered into, or an option granted, on or after the day after 11 December 2008.
The amendments do not address other areas of concern with the sub-sale provisions. In particular, the broad definition of 'land development' has been left in place. The doing of any prescribed activity in relation to the land (eg preparing a plan of subdivision or applying for a permit) will bring a sub-sale within the scope of these provisions whether or not that activity increases or enhances the value of the land.
Further, the changes do little to reduce the complexity of the sub-sale provisions. There will remain situations where the sub-sale provisions have unintended consequences for both the taxpayer and the revenue office.
Transfers to and from bare trustees
Section 35 of the Duties Act exempts from duty the transfer of dutiable property to a trustee or nominee to be held solely for the transferor without any change in the beneficial ownership or the re-transfer of the property to the transferor. The Act replaces this.
New section 35 extends the exemption to a declaration of trust recording the trust and also limits the exemption for a re-transfer of the property by including conditions that there be no change in beneficial ownership of the property and that no person other than the transferor hold a beneficial interest in the property whilst the trust subsists.
The indirect tax specialists at Hall & Wilcox have extensive experience and expertise in this area of tax.
For further information, please contact: