The increasing occurrence of new developments and stamp duty issues has lead to the recent adoption of a number of high court decisions relating to stamp duty and principles. Unsurprisingly, the Office of State Revenue has been quick to respond to issues relating to consideration and the dutiable value of property as this ultimately affects the transfer duty that must be applied to any one of several transactions. It is important that practitioners are at the very least aware of these issues when drafting documents for the transfer of land in a development or acting for a developer in a series of transactions under the umbrella of one single agreement, separate contracts or land packages.

The Lend Lease Decision

The high Court’s recent decision in Commissioner of State Revenue v Lend Lease Development Pty Ltd (Commissioner of State Revenue v Lend Lease Development Pty Ltd; Commissioner of State Revenue v Lend Lease IMT 2 [HP] Pty Ltd; Commissioner of State Revenue v Lend Lease Real Estate Investments Limited [2014] HCA 51) provides some clarity as to what constitutes consideration when dealing with development agreements and contracts for stamp duty purposes.

In this case, the high court revisited what constitutes consideration for the transfer of dutiable property and found that not only contractual amounts stipulated in an agreement of transfer are assessable, but also payments made (or expected to be made) under a development agreement (“DA”). What this means in practical terms is that despite there being a negotiated contract price for purchase of land or commercial agreement, other contributions from the purchaser may be assessed. These include, as in the case of lend lease, contributions made to infrastructure, contributions made to the site, contributions made to the development itself and any other amounts due and payable by the purchaser.

The High Court relied on its decision in Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3 and cemented the test for determining consideration for the transaction as “what was received by the vendor’s so as to move the transfers to the purchaser as stipulated in the agreement”. It would appear from these decisions that the relevant calculation for determining dutiable value is to look at the whole agreement including promises for payment, contractual price, and the various steps recorded in the agreement at all stages.

It is important to remember that each state has a different position in relation to how to quantify the consideration to be assessed. This is where the contingency principle can be applied.

The Contingency Principle

The contingency principle is the way by which any identified and quantifiable contingent consideration forms part of the upfront dutiable amount. This is regardless of when and whether the amount was paid.

As an example of this, if land is sold for say $500,000 with a further $500,000 payable on the further development of another stage or if rezoning is achieved etc, the total amount of consideration will comprise of both amounts, that is $1 million, even if the second event that gives rise to the second $500,000 being payable does not eventuate.

Currently, as it applies in Queensland, the total amount to be paid and be ascertained is the amount taken to be the consideration or part of the consideration for the assessment of duty.

Of course, the Commissioner may assess on the highest consideration payable under the instrument or transaction if the consideration payable may be increased or decreased dependent on a certain event occurring.

If there is a minimum amount stated in an agreement the Commissioner may assess the duty on the minimum amount whether or not depends on a particular thing happening or not happening.

The Commissioner may assess the duty on the maximum amount agreed between parties whether or not that maximum amount is dependent on a particular thing happening or not happening. It is therefore important that practitioner takes into account all promised monetary amounts and possible monetary amounts that may be applied in future to the agreement when calculating stamp duty for a transaction of this kind. It is always best practice to calculate on the highest of all amounts and then adjust as necessary with relevance to the particular State legislation.

Going Forward…

Going forward it is essential for practitioners to assess stamp duty on the amounts that may vary in dutiable transaction as in the lend lease case, and on the contingency principle which stipulates we pay transfer duty on quantifiable contingent and identified amounts, whether or not they have been paid at time of stamping. Practitioners must be well informed of all the aspects of a proposed agreement and set out the payments in an agreement strictly if instructed to draft a development agreement or transfer of property of this kind. The agreement should make it absolutely clear what amounts are payable to secure the transfer of land and include all amounts pre-and post transfer so that stamp duty can be easily quantified from the consideration amount.

It remains to be seen if the office of State revenue will revisit decisions and audit stamp duty payments for previous decisions of this kind.

Tayla Mojidi