The Victorian SRO has announced changes to the duty payable arising from Late Settlement Interest coming into effect on 1 July 2022.
When a contract of sale becomes unconditional, any delays in settlement can result in interest payable as stipulated in the contract (Late Settlement Interest).
On 15 June 2022, the Victorian State Revenue Office (SRO) provided an update on duty payable in regards to late settlement interest payments. From 1 July 2022, the SRO will require payment of duty calculated on interest amounts of more than AUD 5,000 arising from late settlement in properties in Victoria if the dutiable value for the property consists of the consideration for the transaction. These changes will last for a period of at least 12 months.
- When is duty payable on Late Settlement Interest?
- Are there any exemptions?
- Will this delay settlement?
- How is duty paid on Late Settlement Interest?
- Next Steps
The SRO now considers Late Settlement Interest to be a part of the consideration which 'moves' the transfer of the land and therefore can form part of the dutiable value of land. This announcement will not affect transactions where the dutiable value of the land is calculated by reference to the unencumbered value and this is higher than the total consideration.
The concept of consideration and what 'moves' the transfer was discussed in a 2014 High Court case between the SRO and Lend Lease. It appears the SRO is relying on the principles discussed in that case in making this announcement. The SRO does not, in its announcement, discuss its views on whether Late Settlement Interest could take the characterisation of compensation payable by the transferee to the transferor (which would arguably fall outside the concept of consideration).
When is duty payable on Late Settlement Interest?
For contracts of sale or arrangements entered into after 1 July 2022, duty will also be payable on Late Settlement Interest amounts of AUD 5,000 or more. In this instance, the transaction needs to be re-lodged for reassessment of the new duty amount within 30 days of settlement. These changes apply for 12 months, after which time it may be revisited (Interim Period).
Are there any exemptions?
If a Late Settlement Interest amount is less than $5,000, then no re-lodgment is required. Additionally, during the Interim Period, Late Settlement Interest will not form part of the dutiable value for particular concessions (e.g. principal place of residence, first home buyer and off-the-plan) and the First Home Owner Grant.
Will this delay settlement?
It is unlikely that payment of Late Settlement Interest will delay settlement. Importantly, when Late Settlement Interest is payable, the amount should not be included in Duties Online for the primary transfer. In these cases, settlement can proceed with the original estimation based on duty calculated without late settlement interest. Late Settlement Interest should be re-lodged after settlement proceeds.
How is duty paid on Late Settlement Interest?
The SRO must be notified by email and the transaction must be re-lodged within 30 days of settlement.
The following details must be provided:
|•||the bundle/transaction ID of the original lodgment;|
|•||the dutiable value of the original lodgment; and|
|•||the amount of Late Settlement Interest.|
Purchasers in contracts of sale should be wary of the implications of agreeing to reschedule or delay a settlement and understand that further duty may be payable as a result of the Late Settlement Interest.
Currently, Victoria is the only jurisdiction which has publicly announced this position in relation to Late Settlement Interest.