On 19 May 2022 the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (NSW)received Royal Assent introducing significant changes to the Duties Act 1997 (NSW) (Duties Act) which will impact property transactions.
Change in beneficial ownership
The new reforms focus widely on broadening the scope of dutiable transactions under section 8(1)(b)(ix) of the Duties Act by introducing duty on transactions that result in a ‘change in beneficial ownership and acknowledgement of trust’.
Under section 8(3) of the Duties Act the definition of ‘change in beneficial ownership’ has been extended to now include the following transactions:
- the creation of dutiable property (e.g. grant of option);
- the extinguishment of dutiable property;
- a change in equitable interests in dutiable property (e.g. variation of lease); and
- dutiable property becoming subject of a trust and dutiable property ceasing to be the subject of a trust.
Granting of an Option
Call Option Deeds and Put and Call Option Deeds are commonly used by property developers and builders to secure their rights to acquire property as they enable the grantee of the option to nominate a third party purchaser and defer the payment of stamp duty until the call option is exercised and the Contract entered into.
The recent changes to the Duties Act has resulted in ad valorem stamp duty being payable on call option fees under Call Option Deeds and Put and Call Option Deeds. Payment of the stamp duty is triggered on the grant of the option and is calculated on the GST inclusive option fee. However, it is important to note that security deposits, performance payments and legal costs are excluded and will not attract duty under the new legislative reforms.
The grantee will not be entitled to claim a refund for any stamp duty paid irrespective of whether the call option is exercised or not. Also stamp duty paid on the option fee will not be credited towards the stamp duty payable when the option is exercised and Contract entered into.
5. When is the stamp duty required to be paid?
Stamp duty is required to be paid within three months after the liability arises. More specifically the stamp duty will be due and payable three months from the date of exchange of the option deed.
6. Who is the stamp duty paid by?
The grantee of an option will be liable to pay stamp duty.
Example
Marsdens Development Pty Ltd (as Grantee) enters into an option to purchase property from Alfred Jones (as Grantor) for a sum of $100,000.00 inclusive of GST.
Pursuant to the Option Agreement the Grantee is required to pay an option fee of $10,000.00 inclusive of GST for the grant of the option.
Under the recent changes, ad valorem stamp duty is payable by the Grantee and calculated on the amount of $10,000.00 paid for the grant of option.
It is noted that a minimum duty of $10.00 will apply irrespective of the amount of the option fee payable under the option deed as per section 273 of the Duties Act 1997.
7. When do these changes take effect?
All transactions entered into on or after 19 May 2022 involving the grant of an option will attract stamp duty. Transactions arising on or after 19 May 2022 that occur in accordance with an “agreement or arrangement” entered into before 19 May 2022 do not attract stamp duty, however it is unclear as to how this works practically and what “agreement or arrangement” would be considered acceptable.
8. How are these transactions processed?
Arrangements involving the grant of an option deed must be processed on Electronic Duties Returns (EDR) and the relevant Change in Beneficial Ownership Declaration Form ODA-082 and/or Declaration for the Grant of a Put Option and/or Call Option ODA 081 is required. Attached are the relevant forms.
9. Can this transaction attract surcharge purchaser duty?
Transactions liable for stamp duty under section 8(1)(b)(ix) of the Duties Act 1997 are exempt from surcharge purchaser duty. However, premium surcharge duty may be payable if the option relates to residential property that has a value greater than the relevant premium duty threshold (currently being $3,131,000.00).
Grant of an Easement
Under the new reforms the grant of an easement for consideration will be dutiable and calculated on the greater of the consideration and the unencumbered value of the easement.
Grant, Renewal or Variation of Lease
Similarly to a grant of an easement, the grant, renewal or variation of a lease for consideration will be dutiable and calculated on the greater of the consideration and the unencumbered value of the lease only in the event that it creates an interest in land.
Acknowledgement of Trust
The new law reforms have also introduced an imposition of duty on the acknowledgment of trusts.
Section 8AA of the Duties Act charges duty on the making of a statement that has the effect of acknowledging that identified property vested, or to be vested, in the person making the statement is already held, or to be held, in trust for a person or purpose mentioned in the statement.
The new reforms are in response to the decision in the recent Supreme Court case, Benidorm Pty Ltd v Chief Commissioner of Revenue [2020] NSWSC 471 which narrowed the scope of the declaration of trust charging provisions. The Supreme Court held that the definition of “declaration of trust” in subsection 8(3) of the Duties Act 1997 does not include mere acknowledgments of existing trusts. That is, the declaration must have a legal consequence, or consequences, beyond merely acknowledging that which already exists.
Prior to the decision of the Supreme Court, any declaration of trust was considered a dutiable transaction, provided it met the definition in subsection 8(3) of the Duties Act 1997.
As a trustee, careful consideration must be given prior to the execution of any document containing wording or statements capable of being construed as ‘a declaration or acknowledgement of trust’.
Surcharge purchaser duty will be payable if the trustee of the trust is a foreign person and the dutiable property is considered a residential property.
Excluded Transactions
However Section 8(3) of the Duties Act excludes certain transactions from comprising a ‘change in beneficial ownership’.These include:
- the purchase, gift, allotment or issue of a unit in a unit trust scheme;
- the cancellation, redemption or surrender of a unit in a unit trust scheme;
- the abrogation or alteration of a right relating to a unit in a unit trust scheme;
- the payment of an account owing for a unit in a unit trust scheme;
- the grant, renewal or variation of a lease for no consideration;
- the grant of an easement for no consideration;
- the grant of a profit a prendre for no consideration;
- the provision of a security interest within the meaning of the Personal Property Securities Act 2009 of the Commonwealth;
- a change in a trustee’s right of indemnity;
- the creation of an interest in dutiable property by statute;
- a transaction of a kind prescribed by the regulations; and
- a combination of the transactions referred to above.
Other Changes
1. Off the plan transactions
Off the plan transactions entered into on or after 19 May 2022 will now provide an exemption to ‘defence force personnel’ whereby they will no longer be required to satisfy the residence requirement.
The residence requirement provided that at least one of the purchasers/transferee’s must use and occupy the property as their principal place of residence for a period of at least 6 months within 12 months of settlement.
At least one of the purchasers/transferees has to be a member of the Permanent Forces of the Australian Defence Force and each of the purchasers or transferees is required to be enrolled to vote in State elections under the Electoral Act 2017 in order to qualify.
2. First Home Owner (New Homes) Grant
In relation to the eligibility cap for the First Home Owner Grant, prior to the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022, the total value of a transaction was determined as at the commencement date for the contract to build a new home or in the case of the building of a home by an owner builder, the date the transaction is completed.
For transactions entered into on or after 19 May 2022, when determining if the transaction exceeds the eligibility cap, the total value of the transaction is determined as follows:
2.1 Contract for the purchase of a home - the commencement date; or
2.2 Comprehensive home building contract - the date the transaction is completed; or
2.3 The building of a home by an owner builder - the date the transaction is completed.
3. Land Tax
The State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (NSW) also amends the Land Tax Act 1956.
Prior to the legislation amendment for a person to be eligible for a principal place of residence exemption from surcharge land tax, the person is required to use and occupy the land as their residence for a continuous period of 200 days or more in the current land tax year. If the owner is physically absent from Australia, this absence does not count towards the 200 day period.
The changes permit the Chief Commissioner of State Revenue to exercise discretion and waive the 200 day requirement in exceptional circumstances where a brief absence from Australia has occurred.
4. Surcharge purchaser duty Australian-based developer
Section 104ZJA extends the refund of surcharge purchaser duty that is paid in relation to a transfer of residential land, if after the transfer, the land is used by the transferee wholly or predominately for commercial or industrial purposes. This section also permits a reassessment of surcharge purchaser duty more than 5 years after an initial assessment of liability in certain circumstances.
Concluding Comments
The reforms have significantly impacted the scope of property transactions that are now subject to stamp duty, whilst extending the operation of the existing anti-avoidance provisions. Therefore careful consideration must be taken to properly draft legal documents so there are no unintended stamp duty consequences.
For further information on the reforms, please feel free to contact one of our Property Partners, Peter Crittenden, Ben Wong, Wade Thomas, Lachlan Gelder or Amit Kumar.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
