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Stamp Duty on Options to Purchase NSW Land: a refresher

Newsletter Article 18 March 2015

A transfer or assignment of an option to purchase NSW land is a dutiable transaction under the Duties Act 1997 (NSW) (Duties Act).

Following the NSW Supreme Court decision in CTI Joint Venture Company Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 20 in which the Court held that the nomination of a third party to exercise the call option was not a dutiable transaction, the Duties Act was amended to effectively capture nominations as dutiable transactions on which duty is payable.

The amendments to the Duties Act commenced on 23 October 2014 and apply to options granted before or after these changes. It is therefore important to consider the duty implications before entering into any dealings concerning options to purchase NSW land, including options that were created before the Duties Act was amended.

This article summarises the current position.

Call options

A transfer of an option to purchase NSW land will be taken to occur if a call option holder, for valuable consideration:

  • nominates another person to exercise the option; or
  • nominates another person as purchaser or transferee of the land the subject of the option on or before the exercise of the option; or
  • 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 person liable to pay the duty is the person who is nominated as purchaser or transferee of the land or who acquires the right to exercise the option.

Duty on the nomination or novation will be calculated based on the consideration paid for the nomination or novation, or the value of the option, whichever is higher, and is payable within 3 months after the option transfer date. The option transfer date is:

  • in the case of a nomination – when the nomination is made; or
  • in the case of a novation – when the option holder agrees to the novation or otherwise relinquishes rights under the option.

The consideration for the transfer of the land will be taken to include the amount or value of the consideration provided by the transferee for the option (whether for its grant, transfer, exercise or otherwise). The duty payable on the transfer of the land will, however, be reduced by the amount of any duty paid by the transferee on the transfer of the option to the transferee.

Event Liability for Duty Calculation
Purchaser 1 pays an option fee of $20,000 to the land owner and obtains an option to purchase land for $2,000,000. No duty is payable on the grant of the option to Purchaser 1. $0
Purchaser 1 transfers the call option to Purchaser 2 and receives a nomination fee of $500,000. Duty on the nomination fee of $500,000 is payable by Purchaser 2 within 3 months of the option transfer date (being the date the nomination is made). $17,990
Purchaser 2 exercises the call option Duty is payable on the land transfer ($2,500,000 – the purchase price plus the nomination fee) by Purchaser 2 within 3 months of the option exercise date. The amount of duty is reduced by the amount of duty paid by Purchaser 2 on the earlier nomination.

$122,990 - $17,990
= $105,000

 

* Before the
changes to
the Duties Act,
Purchaser 2
would have
paid total duty of $95,990

 

Put and Call Options

In relation to put and call options, there will be a deemed transfer of the underlying dutiable property where an option holder, for valuable consideration, enters into an agreement or arrangement under which:

  • the option holder relinquishes its call option rights and a call option is granted to another person; or
  • the option holder nominates another person to be the purchaser or transferee of land the subject of the call option.

In such cases:

  • ‘option assignment duty’ (under Chapter 3 Part 2 of the Duties Act) is payable by the option holder who transfers the call option rights, and is calculated based on the consideration paid for the nomination or novation, or the value of the property, whichever is higher; and
  • duty is payable by the transferee of the option, and is calculated based on the consideration paid for the nomination or novation, or the value of the option, whichever is higher.

The consideration for the transfer of the land will be taken to include the amount or value of the consideration provided by the transferee for the option (whether for its grant, transfer, exercise or otherwise). The duty payable on the transfer of the land will be reduced by the amount of any duty paid by the transferee on the transfer of the option to the transferee.

Event Liability for duty Calculation
The land owner enters into a put and
call option with Purchaser 1. Purchaser
1 pays a call option fee of $20,000 to the land owner and obtains the right to purchase land for $2,000,000.
No duty is payable on the grant of the put and call option. $0
Purchaser 1 transfers the call option to Purchaser 2 and receives a nomination fee of $500,000.

Option assignment duty is payable by Purchaser 1 on the transfer of the option to Purchaser 2. Duty is calculated on the dutiable value of the land.

 

Duty is payable by Purchaser 2 on the transfer of the option to Purchaser 2. Duty is payable on the dutiable value of the option.

 

Duty is payable by Purchaser 1 and Purchaser 2 respectively within 3 months of the option transfer date.

$95,490

 

 

$17,990

 

 

Purchaser 2 exercises the call option Duty is payable on the land transfer ($2,500,000 – the purchase price plus the nomination fee) by Purchaser 2 within 3 months of the option exercise date. Purchaser 2 will receive a credit for the duty paid by Purchaser 2 on the earlier transfer of the option to Purchaser 2. $122,990 - $17,990
= $105,000

 

Important considerations

As always, it is important to consider the duty consequences before entering into any dealings concerning land, including new or existing options.

Some exemptions and concessions apply to the generalised principles stated above.


Caroline Najjar, Senior Associate
Sydney

Newsletter Article 18 March 2015
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