Proposed Changes to Duty in Victoria
The Victorian Government is seeking to amend the Duties Act 2003 with the introduction of the Duties Amendment Bill 2008 (“the Bill”). The amendments will have far-reaching implications, especially with regard to commercial leases.
The Proposed Changes
The proposed changes can be summarised as follows:
- Stamp duty will be payable in fourteen days (currently three months)
- Some leases may be subject to stamp duty in the following circumstances:
- Where a premium is paid to secure the grant of a lease
- Surrender of a lease for consideration o When a lease is transferred or assigned for consideration
- A lease where consideration is paid to secure other rights including:
i. The right to purchase the land
ii. An option to purchase the land
iii. A right of first refusal regarding the sale of the land or
iv. Any other right through which the leasee may obtain an interest in the land
- The definition of “beneficial ownership” and “change in beneficial ownership” will be amended to widen the breadth of transactions to which stamp duty will apply.
Victorian Treasurer, John Lenders MP, has expressed his view that the amendments relating to leasing are only intended to cover scenarios where beneficial ownership of the property is transferred. The intent is to stop the adopted practice of parties entering into long term leases (i.e. terms of 99 years) as a means of avoiding duty that would otherwise be payable if the property was sold and subsequently transferred.
If one of the transactions set out above is triggered, then stamp duty will be payable on the greater of:
- The consideration paid or
- The unencumbered value of the land
Accordingly, the duty amount has the potential of placing a huge financial burden on the party liable for making the payment to the State Revenue Office.
Time Limit Reduction
The Bill proposes a reduction of the time limit for paying duty from three months to fourteen days. The shorter collection period has been criticised because it may be unrealistic in complicated transactions.
Date of Effect The proposed amendments are expected to act retrospectively from 21 November 2008, with the exception of the reduced time period for payment. This will result in lease transactions since that date being retrospectively assessed as dutiable.
Implications of the Proposed Changes
There is a notable side effect of the proposed reduction in the collection timeframe. If a dispute arises in relation to a duty assessment, one will need to pay the duty pending the outcome of the dispute. This is due to the fact that interest accrues on duty which is not paid by the deadline and it is unlikely any dispute will be resolved within the new fourteen day timeframe for payment.
Progress of the Bill
Parliament considered the Bill earlier this year. The Bill was passed by the lower house on 26 February 2009 and proceeded to the upper house. On 10 March 2009, in light of confusion as to the effect of certain provisions, the upper house refused to read the Bill a second time pending the completion of a public consultation process.
Following a stakeholder consultation process, it has been suggested that the Bill be amended to extend the proposed collection timeframe from fourteen days to thirty days (among other changes). The Bill will be the subject of further review by a parliamentary committee and is likely to be reintroduced to parliament this month.
Author: Damien Schulze & Nick Rimington