Land development may trigger unexpected stamp duty in Victoria

In brief - Victorian State Revenue Office issues Ruling DA-064, which considers the meaning of land development for the purposes of the Duties Act 2000 

The meaning of land development is relevant for foreign purchaser additional duty (FPAD) and the sub-sale provisions of the Duties Act.

Foreign purchaser additional duty

FPAD is imposed at the rate of 8% where a foreign purchaser acquires residential property. The definition of residential property includes land on which a person has undertaken or intends to undertake land development to create residential property.

FPAD may also be payable where a foreign purchaser acquired a property that was not residential property, but later decided to convert it to residential property.

Sub-sales

The sub-sale provisions can apply where a party is nominated to receive a transfer of the property under a contract and land development occurs between the contract date and the nomination date. The provisions apply even if there has been no consideration paid for the nomination.

If land development occurs between the contract date and the nomination date, transfer duty is payable on the transfer contemplated in the contract and the nomination transaction. Transfer duty is imposed as if the property had been transferred to the purchaser named in the contract and is also imposed on the greater of the consideration paid for the nomination and the unencumbered market value of the property at the nomination date.

The provisions can also apply to a property subject to an option where the ultimate purchaser of the property is not a party to the option and land development occurs between the date the option is granted and the date the property is transferred.

If land development occurs between the date the option is granted and the date the property is transferred, transfer duty is payable on the transfer contemplated by the option and the transaction under which the purchaser obtains the right to purchase the property. Transfer duty is imposed as if the transfer contemplated by the option had been completed and is also imposed on the greater of the consideration paid to obtain the right to purchase the property and the unencumbered market value of the property when the right was obtained.

Land development can therefore trigger unexpected and substantial liability for stamp duty. Effectively, double stamp duty applies.

How can the provisions apply to developers and foreign purchasers?

Unwary developers can be caught by the sub-sale provisions where land is purchased by special purpose vehicles which have not been established at the contract date or option date. If land development occurs within the times set out above, the sub-sale provisions may apply.

For foreign purchasers, land development can convert property that was not residential property into residential property for FPAD purposes. 

What is land development?

The definition of land development in the Duties Act contains six limbs. If any one or more of those limbs is satisfied, land development has occurred. The definition is very broad and includes activities that would not be considered to be land development if an ordinary meaning was applied.

The six limbs are:

1. preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act 1988

2. applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land

3. requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land

4. applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land

5. doing anything in relation to the land for which a permit or approval under the Building Act 1993 would be required

6. developing or changing the land in any other way that would lead to the enhancement of its value.

Other than for the final limb, it is not necessary to demonstrate that there was an increase in value for land development to have occurred.

The Duties Act does not state which party has to undertake land development. The Ruling provides general guidance that the Commissioner will only take into consideration activities undertaken directly or indirectly by a party to the contract (or option) and nomination, including related parties, agents, associates or tenants who act with the knowledge or consent of any of the parties.

The Ruling addresses each of the six limbs in some detail and provides examples of activities that may be caught under the relevant limb. Here is a summary:

1. Preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act 1988

Activities within this limb include:

Activities outside this limb include:

engaging surveyors to undertake surveys of the property or the local areas engaging surveyors to prepare reports for the purpose of a plan of subdivision or consolidation drafting or re-drafting a plan of subdivision or consolidation commissioning a professional review of a plan of subdivision or consolidation for the purpose of amending the plan or preparing a new plan lodging a plan of subdivision or consolidation for council for certification undertaking any other works required to obtain a statement of compliance submitting the plan of subdivision or consolidation for registration.

preliminary research and analysis on the market and the area to identify the general development potential of the property including consulting with real estate agents and reviewing sales data, reviewing and considering any planning scheme material and looking into the costs involved in the process of subdividing a property performing routine property searches or checks against title or an existing plan of subdivision commissioned by another party general and preliminary inquiries about the process for preparing a plan of subdivision or an amendment to an existing plan informal surveys and measurements of a property.

 

2. Applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land

Activities within this limb include:	Activities outside this limb include:
applying for or obtaining a permit, with or without conditions, other than a permit solely for maintenance work (for example, a permit for minor repairs on part of an existing fence) applying for or obtaining an amendment to an existing permit, other than a minor amendment made in a secondary consent form.	applying for or obtaining an extension of time for an existing permit, although if the value of land is enhanced by the extension, then this may be land development under limb 6 a tenant of the property applying for or obtaining a planning permit to erect a sign for the tenant's business in accordance with the lease.

 

3. Requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land

Activities within this limb include:	Activities outside this limb include:
a submission seeking amendments to a planning scheme that would affect the land a submission attaching detailed reports in support of proposed amendments to a planning scheme.	a submission that seeks to preserve the status quo for a planning scheme informal discussions about the process for a planning scheme amendment.

 

4. Applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land

Activities within this limb include:	Activities outside this limb include:
applying for a building permit or approval obtaining a building permit or approval applying for or obtaining an amendment to a building permit.	engaging a firm to provide professional building advice preparing reports as initial steps to applying for a building permit. However, if the value of land is enhanced by these activities, then this may be land development under limb 6. Also, these activities can demonstrate an intention to undertake land development for the definition of residential property for FPAD purposes.

5. Doing anything in relation to the land for which a permit or approval under the Building Act 1993 would be required

Activities within this limb include a purchaser demolishing a building on the property with the permission of the vendor without obtaining a building permit or approval.

However, if the contract required the vendor to demolish the building before settlement, and demolition was undertaken without the involvement of the purchaser or its associates, this would not be land development because the consideration under the contract includes the demolition work.

Commencement of construction of an apartment that has been purchased off the plan is not land development because the consideration under the contract includes the construction of the apartment.

6. Developing or changing the land in any other way that would lead to the enhancement of its value

Activities within this limb include:

Activities outside this limb include:

a purchaser undertaking decontamination activities on the land with the permission of the vendor removal of a covenant on title removal of the land from the Victorian Heritage Register a Minister rezones the land as a result of a submission from any of the parties to the contract, their associates or persons under their instructions any of the parties to the contract, their associates or persons under their instructions make a submission in support of a proposed rezoning of land a purchaser undertaking repairs or improvements to a building on the property with the permission of the vendor.

minor maintenance or repair activities undertaken by a vendor repairs undertaken by a vendor which maintain rather than enhance the value of the property, such as replacement of a roof destroyed by a storm.