The State Revenue Office has just hit a client of ours with duty on a $2.5m property for Share Transfers completed in 2017 (before the client had engaged Danaher Moulton).
The facts
Our client:
- Purchased commercial land in early Nov 2017 in his name.
- In mid-November he nominated a Company to complete the purchase due in January 2018.
- In late November 90% of the shares in the Company were transferred to a third party (after nomination date but before settlement).
The State Revenue Office then wrote to him in late 2022 advising that additional duty was payable on the share transfers.
The Law
S74 of the Duties Act provides in essence that:
- A Purchaser is deemed to own an interest in land from the DATE OF THE CONTRACT, not settlement.
- A Purchaser includes any person who is nominated under a Contract.
- A reference to an uncompleted Contract includes a reference to any rights granted under a Put and Call option Agreement.
The Problem for our client
The problem for our client was that the shareholding in the nominee Company was changed after the date of the nomination thus triggering a duty event (and hence double duty).
Key Take Aways from the above
The following are the key matters that arise from the above:
- Do not change any interests in a Company or Unit Trust that has entered into a Contract of Sale without considering duty.
- The value of the land owned by the Company or Unit Trust needs to exceed $1m for duty to apply.
- If the Shareholding/Unitholding in a Purchasing entity is to be changed (such that it triggers duty) after a Purchaser has signed the Contract it is better to first establish the correct shareholding in a separate new entity and THEN nominate that new entity as the purchaser. Until nomination, the new entity does not hold an interest in the land.
- For a Company a change in 50% or more of the shareholding triggers a duty event.
- For a Unit Trust a change in 20% or more triggers a duty event.
- Do not change any interests in a Company or Unit Trust that has entered into a Put or Call Option Agreement in respect to land without considering duty.
The Risk for Advisors
Nominating under a Contract of Sale is fraught with danger.
Conveyancing is not just a process. Proper advice needs to be taken about the whole project of buying property.
Getting it wrong can result in significant costs for your client and significant exposure for liability or at the very least a damaged relationship where the proper advice is not provided.
We are happy to help you and your clients through these difficult issues.
Call Dennis, Elizabeth or Will to discuss any problems or issues you may have with duty on 1300 363 314.
