In brief

The Victorian State Revenue Office released Ruling DA-064 which sets out the Commissioner's views on what actions and activities constitute "land development". We previously commented on the draft revenue ruling when it was released for consultation here.

To summarise why this ruling is important:

  • The novation or assignment of rights under a contract for sale of land is generally brought to duty where "land development" occurs before the acquisition of the right to the land. Also, a foreign purchaser who acquires residential property may be liable for an additional amount of duty at a rate of 8%. "Residential property" captures land on which a person has undertaken or intends to undertake "land development" to create residential property.
  • The Commissioner sets out what comprises "land development" in the Revenue's view.
  • The Commissioner takes a wide view of what is land development including various actions not involving physical works on the land. They include:
    • initial activities undertaken to prepare a plan of subdivision such as engaging surveyors;
    • rezoning land as a result of submissions from any of the parties to the contract; and
    • any of the parties to the contract making a submission in support of a proposed rezoning of land.

To assess whether double duty may arise or whether foreign purchaser additional duty applies, it would be prudent for taxpayers to:

  • test whether any activities proposed to be carried out by any party after exchange of a land sale contract may constitute land development, especially if nomination of a subsequent transferee is intended;
  • particularly relevant to foreign purchasers, inform themselves through due diligence as to whether any party (the vendor or otherwise) has carried out land development prior to exchange, including submitting any application for planning or building permits; and
  • seek a private ruling if it is unclear whether any events or activities would constitute land development.

Victoria, unlike most other States and Territories does not charge duty on contracts for the sale of land. Ad valorem duty is collected instead on the transfer made on completion of the contract. Most other jurisdictions will charge ad valorem duty on the contract and collect nominal duty on a transfer to the purchaser.

However, in some cases, Victoria will charge duty where, before completion, there has been a "sub-sale". That is, an acquisition of a "transfer right" between the contract or option date and the date of completion. The presence of "land development" is one of the circumstances that can trigger the application of the sub-sale provisions under Part 4A of Chapter 2 of the Duties Act 2000 (Vic) (Sub-sale provisions). Where, land development that occurs between the contract date and the date a person acquires a "transfer right" whether by assignment or novation of the contract, duty liabilities under the Sub-sale provisions may arise.

The Commissioner describes land development to mean any one or more of the following six limbs:

  1. Preparing a plan of subdivision of the land or taking any steps to have a plan registered.
  2. Applying for or obtaining a planning permit in relation to the use or development of the land.
  3. Requesting a planning authority to prepare an amendment to a planning scheme that would affect the land.
  4. Applying for or obtaining a building permit or approval in relation to the land.
  5. Doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required.
  6. Developing or changing the land in any other way that would lead to the enhancement of its value.

Broadly, in the Commissioner's view, land development is "the process of altering the state and/or use of land".

In determining whether an activity constitutes land development, the Commissioner will consider the following:

  • Facts, circumstances and contexts of each matter;
  • Tangible and intentional actions associated with developing and changing the use of the land; and
  • Overall effect and consequence of the activity.

The wide ambit of what is "land development", in the Commissioner's view, is noteworthy as it includes a range of things going beyond physical development. The Commissioner suggests some limits to that scope. Generally, the Commissioner "will only take into consideration activities undertaken directly or indirectly by a party to the contract/agreement and nomination, including activities by related parties, agents, associates or tenants who act with the knowledge or consent from any of the parties".

The Commissioner comments specifically on each of the limbs of the above definition of "land development".

(a) Preparing a plan of subdivision or taking steps to register

The Commissioner is of the view that initial activities undertaken to prepare a plan of subdivision or measures towards registering a plan of subdivision or consolidation under the Subdivision Act 1988 constitute land development. These activities, in the Commissioner's view, include:

  1. Engaging professional surveyors to undertake surveys of the property or the local area and/or prepare reports for the purpose of a plan of subdivision or consolidation.
  2. Drafting or re-drafting a plan of subdivision or consolidation.
  3. Commissioning a professional review of a plan of subdivision or consolidation for the purpose of amending the plan or preparing a new plan.
  4. Lodging a plan of subdivision or consolidation for council for certification.
  5. Undertaking any other works required to obtain a Statement of Compliance, and/or
  6. Submitting the plan of subdivision or consolidation for registration.

The view that "initial activities' undertaken to prepare a plan of subdivision falls within the description of "preparing a plan of subdivision" requires a wide reading of what is involved in "preparing" the plan. Whether merely engaging surveyors of itself can come within the description is not clear, given that that preparation of any plan that is adequate may in many cases only occur after the surveyor's work is done.

The Sub-sale provisions, in the Commissioner's view, apply not just to plans of subdivision but also preparing a plan of consolidation. The Subdivision Act 1988, however, distinguishes between subdivisions and consolidations, so that it is not clear how the reference to "preparing a plan of subdivision of the land or taking any steps to have the plan registered" (emphasis added) can extend to consolidations.

Activities that are not considered to be land development under the relevant limb, in the Commissioner's view, include:

  • 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, and
    • 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.

(b) Applying for or obtaining a permit under the Planning and Environment Act 1987

An application for a permit, the granting of the permit or granting of the permit with conditions under the Planning and Environment Act 1987 constitutes land development within the meaning of limb (b).

Generally, the Commissioner will not regard a permit solely for maintenance work (for example, a permit for minor repairs on part of an existing fence) as amounting to land development.

However, a permit to renovate or restore a derelict property would be considered as land development under limb (b).

In relation to amending an existing permit, generally, municipal councils require minor amendments to be made in a Secondary Consent Form. The Commissioner takes the view that such minor amendments do not constitute land development under limb (b).

Asking for an extension of time for an existing permit in itself may not be contemplated in limb (b). However, if the value of the land is enhanced as a result of the time extension, the granting of the time extension may constitute land development under limb (f).

(c) Requesting an amendment to a planning scheme

The Commissioner takes the view that a request for the purpose of limb (c) would generally be in the form of a submission. The following are examples where a submission would constitute a request under limb (c):

  • A submission seeking amendments to a planning scheme that would affect the land; and
  • A submission attaching detailed reports in support of proposed amendments to a planning scheme.

Submissions that do not advocate for amendments to be made to a planning scheme do not constitute land development under limb (c). In particular, submissions that seek to preserve the status quo or informal discussions about the process for a planning scheme amendment would not be considered as a request under limb (c).

(d) Applying for or obtaining a permit or approval under the Building Act 1993

Under the Building Act 1993, a permit or approval is required to carry out building work except for exempt building work. Building work is defined broadly to mean work for or in connection with the construction, demolition or removal of a building. The application and approval processes for a building permit and an amendment to an existing permit are set out in the Building Act 1993.

An application for, and the granting of, a building permit or approval under the Building Act 1993 constitute land development under limb (d). Amendments to a building permit could also constitute land development under limb (f).

(e) Doing anything in relation to the land for which a permit or approval would be required

This limb captures activities undertaken on land which require a permit or approval under the Building Act 1993 and which are done with or without obtaining such permit or approval. The Commissioner takes guidance from the Building Act 1993 and its subordinate instruments regarding the type of works that would constitute land development under this limb.

(f) Developing or changing the land in any other way that would lead to the enhancing value

The width of this limb of the concept of "land development" is noteworthy and generally captures activities that enhance the value of the land. Even if an activity falls outside the ambit of the other limbs, it may nevertheless constitute land development under limb (f) if it leads to the enhancement of the value of land. A stated example is decontamination activities on the land.

The Commissioner is of the view that activities that do not alter the physical characteristics of land may still amount to land development if they lead to an enhancement of the value of the land. These may include a removal of a covenant on title (e.g. removal of single dwelling covenant) or a removal of land from the Victorian Heritage Register. A rezoning of land may also amount to land development under limb (f) where:

  1. A Minister rezones land as a result of submissions from any of the parties to the contract (including their associates and persons under their instructions), or
  2. Any of the parties to the contract (including their associates and persons under their instructions) made a submission in support of a proposed rezoning of land.

Whether the concept of "developing or changing the land in any other way" in the ordinary meaning of this phrase can capture circumstances that do not involve physical changes to the land is not clear.

Further, the Commissioner's view is that it does not matter if there are any other contemporaneous activities that may have a negative impact on the value of the land. In other words, it does not matter if the 'net result' is negative if there are activities that enhance the value of the land which would fall under limb (f).