The State Revenue Legislation Further Amendment Act 2014 (NSW) was recently passed by Parliament and commenced on 23 October 2014. It amended the Duties Act 1997 (Act) and has consequences for nominations made under call options and novations of agreements for lease. Previously, it was possible to frame these nominations so that there was no dutiable transfer of the option or lease agreement.
Although call options have always been dutiable property under the Act, nominations of call options (where there is no corresponding put option) have not previously been deemed to be transfers giving rise to a liability to duty. Now, a transfer of an option to purchase land is taken to occur if, for valuable consideration:
- another person is nominated to exercise the option;
- another person is nominated as purchaser or transferee of the land on or before the exercise of the option; or
- the option holder 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 purchase the land.
The key requirement is that the transfer must be made for ‘valuable consideration’ and where a deemed transfer occurs, the nominee will be liable for duty on that transfer, with the amount of duty payable being calculated on the greater of the consideration for the transfer and the unencumbered value of the call option.
The consideration for a transfer of the land, which occurs as a consequence of the exercise of an option to purchase the land, is taken to include the amount or value of the consideration provided by the transferee of the option, irrespective of whether it is for the grant, transfer, exercise or otherwise.
The duty payable on the eventual transfer of land if the option is exercised will be reduced by the amount of duty paid on the transfer of the option. It appears that the amendments will operate as follows:
Victor grants a call option to Paula to purchase land. The price payable for the land if the option is exercised is $1,000,000.00.
Paula nominates Norma to exercise the call option. Norma agrees to pay a nomination fee of $200,000.00 to Paula. Norma will be liable for transfer duty of $5,490.00 on the nomination fee as consideration for the deemed transfer of the option from Paula to Norma.
If Norma exercises the call option and buys the land from Victor, she will be liable for transfer duty of $51,490.00 calculated on the sum of $1,200,000.00, but she will be given a credit for the duty of $5,490.00 she paid on the nomination, so that the duty payable on the transfer will be $46,000.00.
Novations of agreements for lease
Another amendment made to the Act is the imposition of duty on a novation of an agreement for lease. This is intended to ensure that duty is paid on transactions equivalent to transfers of lease but which are framed as novations of an agreement to lease.