The mere act of signing a transaction document can trigger stamp duty liabilities and with it, obligations to lodge transaction documents and to pay the underlying duty within a strict timeframe. Failure to meet the deadlines for lodgement and payment can attract severe penalties and interest, and this can be even before you have obtained legal title to the underlying property being transferred.
Therefore, before you sign on the dotted line…ask yourself “Do I know my stamp duty obligations?”
Signing and completion of an agreement – what’s the big deal for stamp duty purposes?
In all Australian jurisdictions transfer duty is charged on ‘dutiable transactions’, which is defined to include agreements for the sale or transfer of dutiable property. Even though the agreement may provide that completion occurs at a date well after the date of execution. In almost all Australian jurisdictions an obligation to lodge and pay the duty arises after signing the relevant document.
The following table summarises these obligations for transfer duty in each jurisdiction.
Click here to view the table.
Where an agreement gives rise to a landholder duty liability, the obligation to lodge and pay the duty will usually only arise upon completion of the agreement. If for example an executed agreement provided that completion was subject to execution of share transfer forms, the obligation to lodge and pay the landholder duty liability will usually only arise upon such execution.
The following table summarises the obligations for landholder duty in each jurisdiction.
Click here to view the table.
Claiming corporate reconstruction relief and the obligation to lodge and pay duty
Recognising any potential duty liabilities before any contemplated restructure of a corporate group will be important to avoid any unintended consequences. If corporate reconstruction relief is not applied for and granted before the contemplated transaction, lodgement of the relevant transaction documents and payment of the duty liability by the relevant due date will be required to avoid being hit with unwanted interest and/or penalties. This is despite there being a genuine corporate reconstruction transaction being undertaken by the group that will be exempted from duty.
Here are some ‘war stories’ where things can present unexpected consequences.
Outstanding duty needs to be paid before an exemption application is considered
Under section 263(4) of the Duties Act 2008 (WA) an exemption from duty cannot be granted in relation to a restructure transaction if any member of the corporate group has an outstanding tax liability. Company A belongs to a corporate group which has an outstanding duty liability accruing from many years ago due to a previous dutiable transaction at the parent-entity level. The previous transaction is only discovered by Company A during discussions regarding a proposed restructure.
Company A is prevented from being granted corporate reconstruction relief until the previous duty liability has been paid. Company A must also pay interest and penalties accrued on the unpaid duty liability.
Lesson: Unpaid duty liabilities can affect the availability of corporate reconstruction relief.
Paying interest on zero duty
Company B undertakes a genuine restructure transaction under which a transfer duty liability arises. Company B applies for corporate reconstruction relief after the period of time prescribed for the lodgement and payment of the transfer duty. Although Company B is later granted full corporate reconstruction relief (i.e. no duty payable), Company B is still asked to pay interest and penalties that were accruing on the transfer duty liability to the date that the corporate reconstruction relief was granted.
Lesson: If corporate reconstruction relief has not been obtained before or soon after a transaction, lodgement and payment of any duty liabilities should be made within the statutory deadlines to avoid paying interest and penalties.
Paying interest, penalties and primary duty even if you may be eligible for exemption
In acquiring Company D and its subsidiaries, Company C incurs transfer duty liabilities. Lodgement and payment of the transfer duty liability is adequately attended to. However, just before the acquisition, Company D undertook a restructure of its group which also gave rise to transfer duty liabilities. In respect of this restructure Company D did not seek reconstruction relief and additionally, there had been no lodgement of documents and payment of any duty. Company C only learns about this restructure well after the deadline for lodgement and payment of the transfer duty.
Even though Company C later applies for corporate reconstruction relief in respect of Company D’s previous restructure (and may be entitled to an exemption), Company C was assessed with the primary duty together with interest and penalties.
Lesson: The obligation to lodge and pay a duty liability operates independently from any application for corporate reconstruction relief. Adequate warranties and indemnities should also be obtained from a vendor.