The State Revenue Legislation Further Amendments Act (2014)(the “Act”) took effect on 23 October 2014 and has resulted in significant changes to the current New South Wales stamp duty regime whereby new provisions now apply relating to Options to purchase land.
Prior to the latest amendments, it was possible for an option holder to nominate another person to be the purchaser under an Option or otherwise pass the benefit of that Option to a third party, without triggering a liability for stamp duty, even where a substantial fee was paid by the new purchaser to acquire the rights under the Option.
The amending Act provides that, where a person acquires, for valuable consideration, the right to become the purchaser of land in New South Wales under an existing Option (whether by way of nomination, novation or otherwise) duty will be payable on the nomination or novation and will be calculated based on the higher of the consideration paid for the nomination, or the value of the Option.
The Act provides that a transfer of an option to purchase land is taken to occur if, for valuable consideration:
- another person is nominated to exercise the Option; or
- another person is nominated as purchaser or transferee of the land the subject of the Option on or before the exercise of the Option; or
- the option holder agrees to a novation of the Option, or otherwise relinquishes rights under the Option, so that another person obtains a right to exercise the Option or to purchase the land.
The consideration, for duty purposes, on the acquisition of land as a consequence of the exercise of an Option includes the amount or value of any consideration provided by or on behalf of the nominee. However if duty is paid in relation to the nomination, the duty payable on the land acquisition is reduced by the amount paid in relation to the nomination.
To summarise the main changes:-
- where an Option is granted or created and the benefit of that Option is vested in a third party for valuable consideration (whether by nomination, novation or otherwise), duty will be payable on that nomination or novation – even in circumstances where the Option is not ultimately exercised, and
- duty will also be payable upon the transfer of land to the new option holder upon exercise of the Option – with consideration for the transfer including both the nomination fee, and purchase price. However, a credit will be available for any duty paid on the earlier nomination or novation.
In circumstances where a new purchaser is nominated and then the Option is exercised, the only change to the current duty position will be one of timing. Duty will be payable on the nomination fee (or the value of the option) at the time of nomination, and duty on the transfer of the land will be paid upon exercise of the Option. The aggregated amount of duty will remain the same due to the credit which is available for the duty previously paid on the nomination.
However, in circumstances where a third party obtains the benefit of an option to purchase land in New South Wales for valuable consideration, but subsequently fails to exercise the Option:
- duty will be payable upon the nomination or novation of the Option, but
- no refund is available if the Option is not exercised.
For further information please contact a member of our Property Team.