The Minister for Finance, in his 2014 Budget Statement, introduced changes to the stamp duty rate structure for leases, “to ensure consistency in stamp duty treatment across lease periods”. A comparison of the two structures reveals the following:-
Optimum lease period under the old and new stamp duty structures (assuming constant fixed rent throughout the term)
- Prior to the changes, effective 22 February 2014, as a percentage of total rent, for lease periods of less than six years, stamp duty payable is lowest when the lease period is three years (0.27%). It is therefore understandable that one reason to peg shorter leases at three years is to optimise the payment of stamp duty.
- With the changes, as a percentage of total rent, stamp duty remains constant for lease periods of up to four years (0.4%), then steadily decreases as the lease period increases beyond four years (stamp duty is capped at 0.4% of total rent for the first four years only irrespective of lease period). Thus, as a result of the changes, there may no longer be a stamp duty reason to peg lease periods at three years.
Comparing the old and new stamp duty structures (assuming constant fixed rent throughout the term)
Click here to view table.
The practical implications of the changes to the stamp duty rate structure for leases may be noted as follows:-
Contracts dated before 22 February 2014
Use the old formula for:-
- letters of offer accepted before 22 February 2014; and
- leases dated before 22 February 2014 (where no letter of offer was previously stamped).
Contracts dated on or after 22 February 2014
Use the new formula for:-
- letters of offer accepted on or after 22 February 2014;
- leases dated on or after 22 February 2014 (where no letter of offer was previously stamped); and
- variation documents (agreements/letters etc) where date of variation of rent is on or after 22 February 2014.
Compute (i) total rent for entire term (Total Rent) and (ii) AAR as before (no change):-
- Total Rent = total rent for entire term = Monthly (rent + SC + AP) x lease term in months
(Where SC = service charge and AP = advertising and promotions charge)
- AAR = Total Rent x 12 Lease term in months
Check AAR : If less than $1,000, no stamp duty is payable (no change).
Check lease term
- If four years or less, refer to (a) below.
- If more than four years, refer to (b) below.
- For leases of 4 years or less:
Stamp duty = 0.4% of Total Rent (rounded down to the nearest dollar)
- For leases of more than 4 years:
Stamp duty = AAR x 4 x 0.4% (rounded down to the nearest dollar)
Joseph Chun and Melissa Liew