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Part 1: Duty payable on options – and other important duty changes

Malcolm Campbell, ||

This is the first in a series of blogs on the topic of recent amendments to the Duties Act 1997 (NSW) (the Act) – and, of course, what this means for you, and how we can help.

The Act was amended with effect from 19 May 2022.  The amendments to the Act were made by the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (NSW), which received Royal Assent on 19 May 2022.

This blog covers the changes to a change in beneficial ownership of dutiable property, and, specifically, the grant of an option.

Change in beneficial ownership of dutiable property

Section 8(1)(b)(ix) of the Act

This section introduces duty on certain transactions that results in a change in beneficial ownership of dutiable property.  This includes:

  1. the creation of dutiable property;
  2. extinguishment of dutiable property;
  3. a change in equitable interests in dutiable property;
  4. dutiable property becoming the subject of a trust; or
  5. dutiable property ceasing to be the subject of a trust.

Certain transactions are now dutiable as a result of the introduction of this section, including the grant of an option.

What are the excluded transactions?

The Act excludes certain transactions from comprising a change in beneficial ownership.  These include:

  • the purchase, gift, allotment, or issue of a unit in a unit trust scheme;
  • the cancellation, redemption, or surrender of a unit in a unit trust scheme;
  • the abrogation or alteration of a right relating to a unit in a unit trust scheme;
  • the payment of an account owing for a unit in a unit trust scheme;
  • the grant, renewal, or variation of a lease for no consideration;
  • the grant of an easement for no consideration;
  • the grant of a profit a prendre for no consideration;
  • the provision of a security interest within the meaning of the Personal Property Securities Act 2009 (Cth);
  • a change in a trustee’s right of indemnity;
  • the creation of an interest in a dutiable property by statute;
  • a transaction of a kind prescribed by the regulations; or
  • a combination of the transactions referred to in (a) to (k) above.

When do the changes take effect?

As above, the changes will take effect for transactions entered into on or after 19 May 2022.  However, s 8(1)(b)(ix) does not extend to change in beneficial ownership transactions arising after the commencement date if the transaction occurs in accordance with an agreement or arrangement entered into before the commencement date.

Does the transaction attract surcharge purchaser duty?

Surcharge purchaser duty (see Chapter 2A of the Act) does not apply to transactions that are liable to duty under s 8(1)(b)(ix).

Does the transaction attract premium transfer duty?

Premium transfer duty will be payable if the change in beneficial ownership of dutiable property relates to residential property with a value greater than the premium duty threshold (such threshold being $3,000,00.00 for the 2021/22 year).

What are the evidentiary and identification requirements?

There are also new evidentiary requirements for s 8(1)(b)(ix).

In the case of a grant of an option, the following is required:

  1. original executed instrument or instruments evidencing the transaction (including all annexures);
  2. Form ODA 081, Declaration for the Grant of an Option; and
  3. Duties Client Identification.

In the case of all other changes in beneficial ownership resulting from the creation of dutiable property, the extinguishment of dutiable property, a change in equitable interests in dutiable property, dutiable property becoming the subject of a trust, and dutiable property ceasing to be the subject of a trust, the following is required:

  1. original executed instrument or instruments evidencing the transaction (if any);
  2. Form ODA 082, if there is an instrument evidencing the transaction;
  3. Form OSD 046, if there is no instrument evidencing the transaction,
  4. evidence of value (where required) of the dutiable property (see Revenue Ruling DUT 012 v3);
  5. if the liable party is a trustee of a trust – a copy of the endorsed Trust Deed and all variations/amendments to the Trust (if any), including previous deeds of change of trustee; and
  6. Duties Client Identification.

How are these transactions processed?

All dutiable transactions liable under s 8(1)(b)(ix), excluding the grant of an option (which must be processed on Electronic Duties Returns (EDR)), must be lodged via eDuties.

Change in beneficial ownership of dutiable property – Grant of an Option

Section 8(1)(b)(ix) of the Act

As above, the introduction of s 8(1)(b)(ix) means that duty will be payable on the grant of an option.

How is duty calculated?

Ad valorem duty (being duty which is based upon the value of a transaction or of property) is calculated on the call option fee paid for the grant of an option.

The call option fee (i.e., consideration) includes GST (if applicable).

There is a minimum duty of $10.00 as per s 273 of the Act.

However, it is important to note that:

  1. Duty paid on the call option fee is not credited towards the duty payable when the option is exercised.
  2. If the option is not exercised, a refund of duty will not be issued for duty paid on the grant of an option.
  3. Any put option fee is not liable to duty and does not form part of the consideration.

Does the transaction attract premium transfer duty?

As above, premium transfer duty will be payable if the grant of an option relates to residential property and the call option is greater than the relevant premium duty threshold (such threshold being $3,000,00.00 for the 2021/22 year).

Does the transaction attract surcharge purchaser duty?

As above, surcharge purchaser duty does not apply to transactions that are liable to duty under s 8(1)(b)(ix).

What are the evidentiary and identification requirements?

As above, there are new evidentiary requirements for s 8(1)(b)(ix).

How are these transactions processed?

As above, this transaction must be processed via EDR.

Do you want to know more about the recent amendments to the Duties Act 1997 (NSW) (the Act)

You can read Part 2 of this blog series here. If you wish to discuss further with an expert, contact Coleman Greig’s Commercial Advice Team. 

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