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Property deals to be impacted by proposed changes to NSW transfer duty provisions
21 April 2022 | Minutes to read: 2

Property deals to be impacted by proposed changes to NSW transfer duty provisions

By Jonathan Doy and Glen Chew

Proposed changes to the NSW transfer duty provisions are expected to impact option agreements in real property acquisitions.

It’s commonplace for property developers to enter into Call Options or Put and Call Options with landowners to secure rights to acquire a property for subsequent development. However, The State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 (NSW) may throw the benefits of these arrangements into question.

The Bill was introduced on 23 March 2022 and is expected to pass into law sometime in May 2022.

How will Call options be impacted?

Under Call Options or Put and Call Options arrangements, option fees are typically paid to the property owner to secure those rights in a property, but payment of duty is not triggered until at least when the options are exercised.

Under the proposed changes, duty may now be payable by the option holder when the option is created. This is the case for the entirety of option fees to be paid under an option agreement, even when spread out over time, which in some cases can be several years.

Say for example a developer enters into an option to purchase a property for $20 million and pays an initial option fee on signing of $2 million. The developer then pays further tranches in 6-monthly intervals of $1 million for a total of $4 million. Under the new legislation, duty would be payable on the $4 million upfront – on entering into the option agreement. This applies regardless of whether option fees are refundable or non-refundable.

Should the option then be exercised, and the option fees applied as a deposit against the contract of sale of the property, additional duty may be payable on the full $20 million, notwithstanding that duty was already paid on $4 million.

Your next steps

Property developers who are in the process of entering into option agreements should consider when these agreements are likely to be signed as the new laws will not apply to option agreements already in place.

For option agreements that are set to come into place after the laws are in force (expected to be late May), then the additional costs of these duty imposts will need to be reviewed and consideration given to the way the option agreements are structured.

If you would like to discuss the potential impact of the changes above or other impacts of the new legislation, then please contact your William Buck Advisor.

Property deals to be impacted by proposed changes to NSW transfer duty provisions

Jonathan Doy

Jonathan is a Director in our Tax division and holds a wealth of knowledge and industry experience. With a firm belief in a steady approach, Jonathan understands that in order for his client’s to make informed decisions they need transparency and a clear understanding of the issues at hand. With a strong determination to succeed and an attitude to always ‘do better’, Jonathan is now known to his industry peers as one of Australia’s leading GST advisors within the property sector.

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Property deals to be impacted by proposed changes to NSW transfer duty provisions

Glen Chew

Glen Chew is a Senior Manager in our Tax Services division. He has built his expertise assisting individuals and SME’s with complex indirect tax issues and dispute resolution. Glen provides significant experience in property and has the ability to advise on current complex tax issues

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