Stamp duty and your business: 4 tips and traps

If you are considering purchasing or investing in property as part of your business, these stamp duty tips and traps are key factors of which to be aware when making decisions. Recently, the State Government has been finding additional means to raise revenue through stamp duty in Victoria.

Below we consider important legislative changes that the State Government has made to the Duties Act 2000 (Vic) and previous exemptions which are now being closely scrutinised by the State Revenue Office (‘the SRO’).

1. Off-the-plan concessions

Prior to 1 July 2017, this concession was available for all property purchases, regardless of property price or whether the property was to be the purchaser’s principal place of residence. However, those who are looking at potential off-the-plan purchases as an investment or a nest egg for retirement should be aware of the following changes.

Any contract entered into after 1 July 2017 must satisfy the following conditions in order to obtain the off-the-plan concession:

• The property’s dutiable value must be less than $550,000.00 after the concession is applied. This means that, if you are planning on purchasing an expensive off-the-plan property or an off-the-plan property which is close to completion, you should make enquiries with the Vendor regarding duty prior to signing the contract and potentially include a Special Condition in the Contract which confirms the progress of the build at the time of signing the contract,
• The property must be your principal place of residence, and
• The purchaser must occupy the property for a continuous period of at least 12 months, commencing within 12 months from the date of settlement.

If you do not satisfy these conditions, you will not be eligible for the off-the-plan concession. For further examples, visit the SRO’s page on off-the-plan duty concessions.

2. Spousal transfers

A common asset protection tip for directors involves not being named on title as a registered proprietor of a property. Often, this may involve a spousal transfer so that the property is not being held in their name.

After recent changes in July 2017, you will only be able to transfer your principal place of residence to your spouse or domestic partner for no consideration.

Also, you can no longer transfer investment properties between spouses or domestic partners and still obtain an exemption from duty.

Other conditions include that the transferee must reside in the property for a continuous period of at least 12 months, commencing within 12 months of the transfer.  

Once again, if you do not satisfy these conditions and your transaction is audited by the SRO, you will be liable to pay duty plus interest.  

Therefore, prior to purchasing a property, you should take careful consideration as to who should be registered on Title.

3. Purchasing property using trusts

Trusts are commonly used to purchase property and are often used as a holding structure. Prior to purchasing a property, it is important to review your Trust Deeds to ensure no foreign duty is payable.

The SRO has repeatedly stated that a discretionary trust that has any foreign beneficiary (including foreign corporations and trusts) will generally be classed as a foreign trust if the foreign entity has the ability to either:

• access a beneficial interest of more than 50% of the capital under the Trust,  or
• influence the decisions of the administration of the Trust.

Should you wish to use a Trust to purchase property, we recommend that you have your Trust Deed reviewed to ensure that the classes of beneficiaries are specific enough to avoid foreign duty, which is currently an additional 8% on top of the usual duty payable.

4. Changes to economic entitlement provisions

Prior to the changes contained within the 2019 State Budget, landholder duty was payable in certain circumstances where the economic entitlement from property held in land rich private companies or unit trusts was shifted to another party, commonly by way of share or unit transfers, but also through development agreements or other streaming arrangements. Examples of economic entitlement include the right to profits in a development, rent or income from land. This did not apply to individuals, discretionary trusts or SMSF’s.

For landholder duty to be previously payable:

• The total Victorian landholdings of the company or trust must have been more than $1 million, and
• The entity which was obtaining the economic entitlements from the landholder must have been acquiring at least 50% of the benefit in the total landholdings of the landholder.

Under recent changes, if there is an acquisition of an economic entitlement in particular landholdings where the value of that land is more than $1 million, duty will be payable on a proportional basis. If no proportion is stated, then it will be deemed to be 100%.

It no longer matters which form of entity holds the land, nor does it matter what percentage of the economic entitlement is being shifted under an agreement. Therefore, should you wish to enter into an agreement, be aware of the potential duty implications prior to signing. For more information on economic entitlements, please read our article here.

How can Sharrock Pitman Legal assist?

We have Accredited Specialists in Commercial Law and Property Law, we are well equipped to provide you with expert advice on stamp duty and how this will impact your business. If you have any queries or require assistance, please contact Andre Ong on (03) 8561 3317 or alternatively fill in the contact form below.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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