Land development and the double trouble of double duty – the SRO is clamping down
The State Revenue Office (SRO) is applying more intensive scrutiny than ever. The SRO’s ruling DA-064v2 makes clear that a range of activities once regarded as low-risk are now being treated as land development.
As land acquisition, subdivision processes, nomination arrangements and developer structures grow increasingly complex, the SRO has tightened its investigative approach and is now far more likely to review transactions involving a nomination.
Background
The Duties Act 2000 (Vic) (the Act) provides that double duty may arise in various circumstances when a property is transferred to a subsequent purchaser. Two common examples include:
- the subsequent purchaser pays more consideration than the original purchaser; or
- there is any form of “land development” before nominating.
Subsequent purchaser pays more consideration than the original purchaser
When the subsequent purchaser (nominee) pays higher consideration than the original purchaser, the State Revenue Office (SRO) generally treats it as two separate dutiable transactions:
- First transfer – Vendor to the Original Purchaser (based on the contract price)
- Second transfer - Original Purchaser to the Subsequent Purchaser (Nominee) in which the duty is assessed on the durable value of the subsequent transaction.
Even the payment of one additional dollar can trigger the double duty.
There is any form of “land development” by the named purchaser before nominating
What is land development?
Land development is defined broadly in section 3(l) of the Act and includes:
- preparing a plan of subdivision or taking steps to have it registered;
- applying for or obtaining a planning permit;
- applying for or obtaining a building permit or approval;
- doing anything on the land for which a building permit or approval would be required;
- requesting an amendment to a planning scheme that would affect the land;
- developing or changing the land in any way which would increase its value.
The impact of SRO ruling DA-064v2
Given the SRO’s broadened interpretation, the most common risks now arise in relation to limb (a), limb (b) and limb (f) of the land development definition.
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Limb (a) - preparing a plan of subdivision or taking steps to have it registered can constitute land development
a. Key risks
The SRO now considers a wide range of early-stage subdivision activities to be “land development”, capturing not only the drafting or redrafting of a plan of subdivision or consolidation, but lodging plans with council for certification, undertaking works required to obtain a Statement of Compliance, and submitting plans for registration.
These are all treated as land development regardless of intention or the likelihood of the subdivision ultimately proceeding. This significantly heightens risk for developers and any purchaser intending to nominate another transferee.
b. Limited exclusions
The only exclusions as outlined in the dealing are:
- Preliminary research and analysis on the market and the area in order 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 zoning, schedules, overlays, and other council/state planning guideline, policy or requirement that applies to the property;
- 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.
Anything beyond these narrow exclusions may be treated as land development.
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Limb (b) applying for or obtaining a permit under the Planning and Environment Act 1987
There are 2 sub-limbs within limb (b):
- Applying for a permit
- Obtaining a permit
The satisfaction of either of the sub-limbs amount to land development.
There are three (3) types of applications that can be made in relation to permits under this limb:
- Application for a permit to a responsible authority.
- Application for an amendment to an existing permit.
- Application for an extension of time before the expiry or within 6 months after expiry of an existing permit.
The permit that is applied for or obtained between the contract date and the nomination date is treated as land development. As a result, the double duty provisions may apply, and duty is charged on both the contract and the nomination.
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Limb (f) developing or changing the land in any way which would increase its value
Limb (f) captures activities that enhance the value of the land, and the key risk for purchasers is that these activities do not need to alter the physical characteristics of the land to be treated as land development.
Actions such as removing a restrictive covenant, supporting a rezoning application, or securing the land’s removal from a heritage register can all increase the land’s value and therefore fall within this limb.
It is important to note that this risk applies whether the purchaser actively undertakes the step or simply benefits from it.
Key takeaways
- The definition of land development is now interpreted extremely broadly, capturing a wide range of early or preparatory activities.
- Purchasers particularly developers intending to use nomination structures should assume that any substantive subdivision or value-enhancing activity undertaken before nomination may trigger double duty.
- Timing is critical. Purchasers must ensure their final purchasing structure or nominee is confirmed before taking steps that may fall within limbs (a) or (f).
- Early legal advice is essential. Given the expanded interpretation and heightened audit activity, purchasers should seek legal guidance before instructing surveyors, planners, architects, or consultants. It is important to ensure any nomination is done in accordance with the terms of the contract.
