Publications / Taxation

12 Jul 13
NSW stamp duty changes - transfer of options to purchase land

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The NSW State Government recently proposed changes to the Duties Act 1997 (NSW) to charge duty on transactions that affect the transfer of rights under call options.  The amendments are targeted at arrangements involving options to purchase land in New South Wales.

An option to purchase land in NSW is itself dutiable property, and an assignment or transfer of that option is currently subject to duty. However it is possible for an option holder to nominate another person to be the purchaser under the option, or otherwise pass the benefit of the option to a third party, without triggering duty.  This is the case even when a substantial fee is paid by the new purchaser to acquire the right under the option.

Once the changes are implemented, where a person acquires a right to become the purchaser of land in New South Wales under an existing option (whether that is by way of nomination or novation etc.) duty will be payable on the higher of the consideration for (e.g. the nomination fee), or the value of, the option. 

If the option is ultimately exercised, duty is also payable on the transfer of the land to the purchaser.  The duty on this transfer is calculated on the higher of the consideration for, or the unencumbered value of, the land.  Under the proposed amendments the consideration will include both the purchase price for the land under the sale contract and any consideration paid to acquire the option (whether on its initial grant or under a nomination or novation).  A credit will then be available for any duty already paid on the nomination, novation or assignment of the option.

In summary, the practical implications of these proposed changes are as follows:

  • where an option is novated or a nominee is appointed, but the option is not ultimately exercised, duty will now be payable on that nomination or novation
  • where an option is novated or a nominee is appointed and the option is subsequently exercised, the only duty difference will be in the timing of payment, as a credit will now be available for any duty paid on that nomination or novation, and
  • for options that are transferred or assigned the duty position will be improved.  This is because currently there is no credit available for the duty paid on that transfer or assignment, potentially resulting in a double duty outcome.  However, under the proposed changes a credit will be available.

These amendments not only apply to new options, but also to options granted before the changes commence (which will occur as soon as the amending legislation is passed).  Understanding the implications of these changes is therefore relevant for both existing arrangements and future transactions. 

McCullough Robertson’s stamp duty team specialises in the structuring and implementation of major property development transactions and would welcome the opportunity to assist you to ensure the best possible duty outcome in this area.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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