Option to purchase land
Changes to the NSW Duties Act 1997 will ensure that an acquisition of an option to purchase NSW land by way of nomination or novation for valuable consideration is taken to be a transfer of the option and a dutiable transaction. As it is common in NSW for there to be nominations made in respect of options to purchase land, rather than those options being assigned or transferred, this is a significant change of which those involved in real estate transactions should be aware.
This change was first introduced over a year ago as a result of the NSW Supreme Court decision in CTI Joint Venture Company Pty Ltd v Chief Commissioner of State Revenue  NSWSC 20. This case involved the grant of call options over land at Chatswood that included a nomination clause. A third party was nominated under the call option and the Chief Commissioner sought to assess the nomination as a separate dutiable transaction to the transfer of the land on exercise of the option. The court held the nomination was not a separate dutiable transaction.
Under these amendments a transfer of an option to purchase NSW land will be taken to occur if for valuable consideration:
- another person is nominated to exercise the option; or
- another person is nominated as purchaser or transferee of the land the subject of the option 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 to purchase the land.
On exercise of the option, the consideration paid for the transfer of NSW land will include the value of any consideration paid by the purchaser for the acquisition of the option.
To avoid the payment of double duty that would arise on the inclusion of the value of the option in the value of the NSW land purchased, the amount of duty paid on purchase of the land on exercise of the option is reduced by the amount of any duty paid by the purchaser on transfer of the option to the purchaser.
These amendments only apply to options granted or otherwise created on or after the commencement of the provisions being 23 October 2014 which was the date of Royal Assent.
Developers should consider these provisions when nominating or novating under an option to purchase NSW land and the duty consequences that will arise at that time. These amendments may not change the overall amount of duty payable for the land but may change the time at which the duty is paid.
Novation of Agreement for lease
Duty will be payable on the novation of an agreement for the lease of NSW land as if it were a transfer of dutiable property. This amendment ensures that a novation of an agreement for the lease of NSW land is not used as a way of avoiding duty on a transaction that has a similar effect to transferring a lease of NSW land which is a dutiable transaction.
The new lessee will be liable for duty on the novation of the agreement for lease.
This amendment applies only to a novation of an agreement for lease that occurs on or after 23 October 2013.