Sub-sales and duty

The sub-sale provisions in the Duties Act 2000 (the Act) apply to treat certain transactions as sub-sales of land. In such circumstances, duty will be charged as two separate transactions. Relevantly, the sub-sales provisions may apply where transfers:

• involve additional consideration,
• involve land development, 
• result from options.

Transfers involving additional consideration

The sub-sales provisions may apply to the transfer of land where:

• A person (the vendor) enters into a contract (the sale contract) to sell or transfer the property to another person (the first purchaser).
• A subsequent purchaser obtains the right (transfer right) to have the property (or any part of it) transferred, on completion of the sale contract, to the subsequent purchaser.
• A subsequent purchaser or an associate gives or agrees to give additional consideration to obtain the transfer right.
• The vendor transfers the property (or any part of it) to a subsequent purchaser.

In such circumstances, duty will be charged separately on:

• The dutiable value of the sale contract as if it had been completed by the first purchaser.
• The dutiable value of the subsequent transaction by which the final subsequent purchaser obtained the transfer right.
• The dutiable value of any other subsequent transactions, if any.

Who is a subsequent purchaser?

• A person other than the first purchaser.
• The first purchaser and a person other than the first purchaser.
• If more than one first purchaser, one or more of the first purchasers in different proportions from those in the sale contract.

What is additional consideration?

Additional consideration for a transfer right means any consideration given or agreed to be given by the subsequent purchaser (or an associate) in order for the subsequent purchaser to obtain the transfer right (other than reimbursement of excluded costs):

• If the subsequent purchaser obtained the transfer right from the first purchaser – that exceeds the consideration provided under the sale contract.
• If the subsequent purchaser obtained the transfer right from another subsequent purchaser – that exceeds the consideration given or agreed to be given by that other subsequent purchaser in order to obtain the transfer right, to the extent that the consideration relates to the first-mentioned transfer right.

If a subsequent purchaser (or an associate) enters into a parallel arrangement, they will constitute additional consideration.

Transfers involving land development

The sub-sales provisions may apply to the transfer of land where:

• A person (the vendor) enters into a contract (the sale contract) to sell or transfer the property to another person (the first purchaser).
• A person other than the first purchaser (a subsequent purchaser) obtains the right to have the property (or any part of it) transferred, on completion of the sale contract, to the subsequent purchaser (transfer right).
• Land development occurs in relation to the property between the date of the contract and the date of the transfer.
• The vendor transfers the property (or any part of it) to a subsequent purchaser.

In such circumstances duty will be charged separately on:

• The dutiable value of the sale contract as if it had been completed by the first purchaser.
• The dutiable value of the subsequent transaction by which the final subsequent purchaser obtained the transfer right.
• The dutiable value of any other subsequent transactions, if any (that is, any other transfers, assignments, nominations, novation of the transfer right occurring between the contract and final subsequent transaction).

Duty will not be charged on the dutiable value of the sale contract under this provision if:

• The consideration given or agreed to be given by the first purchaser under the sale contract included consideration for the land development provided the first purchaser (or an associate) did not undertake or participate in the land development at any time before a subsequent transaction occurred.
• The land development did not occur until after a subsequent transaction occurred.
• Duty is charged on the sale contract under another sub-sale provision.

Further, duty will not be charged on the dutiable value of any other subsequent transactions if:

• The consideration given or agreed to be given by the subsequent purchaser (or an associate) in order for the subsequent purchaser to obtain a transfer right under the transaction included consideration for the land development provided the subsequent purchaser who is the transferor of the transfer right (or an associate of that subsequent purchaser) did not undertake or participate in the land development at any time before the next subsequent purchaser held a transfer right.
• The land development did not occur before the subsequent purchaser obtained a transfer right.
• Duty is charged on the subsequent transaction under another sub-sale provision.

What is land development?

Establishing whether certain actions amount to land development is crucial as land development undertaken on land may trigger the sub-sale provisions contained in Chapter 2, Part 4A of the Act and accordingly give rise to additional duty liability.

Land development is defined in section 3(1) of the Act to include:

1. Preparing a plan of subdivision or taking any steps to have the plan registered under the Subdivision Act 1988 (Vic). 
2. Applying for or obtaining a permit under the Planning and Environment Act 1987 (Vic) in relation to the use or development of the land.
3. Requesting under the Planning and Environment Act 1987 (Vic) that a planning authority 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 referred to in paragraph (d) would be required.
6. Developing or changing the land in any other way that would lead to the enhancement of its value.

Under certain circumstances (for example, see sections 32J(3) and 32Q(3)) duty is not charged even where land development has occurred.

For guidance on the actions and activities which the Commissioner of State Revenue considers would constitute land development, please refer to Revenue Ruling DA-064 - Meaning of Land Development.

If your circumstances are not covered in the ruling, please consider making a private ruling request.

Transfers resulting from options

The sub-sales provisions may apply to the transfer of land where:

• The owner of the property (the vendor) grants an option, or is granted an option by, another person (the first purchaser).
• A subsequent purchaser obtains the right or assumes the obligation to enter into a contract of sale of the property (or any part of it) with the vendor or to have the property (or any part of it) transferred to the subsequent purchaser (transfer right).
• After the option is granted, but before the property is transferred, land development occurs in relation to the property (or any part of it).
• The vendor transfers the property (or any part of it) to a subsequent purchaser.

Who is a subsequent purchaser?

• A person other than the first purchaser.
• The first purchaser and a person other than the first purchaser.
• If more than one first purchaser, one or more of the first purchasers in different proportions from those in the option.

In such circumstances duty will be charged separately on:

• The dutiable value of the option.
• The dutiable value of the subsequent transaction by which the final subsequent purchaser obtained the transfer right.
• The dutiable value of any other subsequent transactions, if any (that is, any other transfers, assignments, nominations, novation of the transfer right occurring between the contract and final subsequent transaction).

Duty will not be charged on the dutiable value of the option under this provision if:

• The consideration given or agreed to be given by the first purchaser for the option included consideration for the land development provided the first purchaser (or an associate of the first purchaser) did not undertake or participate in the land development at any time before a subsequent transaction occurred.
• The land development did not occur until after a subsequent transaction occurred.

Further, duty will not be charged on the dutiable value of any other subsequent transactions if:

• The consideration given or agreed to be given by the subsequent purchaser (or an associate of the subsequent purchaser) in order for the subsequent purchaser to obtain a transfer right under the transaction included consideration for the land development provided the subsequent purchaser who is the transferor of the transfer right (or an associate of that subsequent purchaser) did not undertake or participate in the land development at any time before the next subsequent purchaser held a transfer right.
• The land development did not occur before the subsequent purchaser obtained a transfer right.
• Duty is charged on the subsequent transaction under another sub-sale provision.