Haskins Settlements & Conveyancing Services

DUTY IMPLICATIONS FOR ONSALES OF "OFF THE PLAN" OR "SUBDIVISION" PURCHASES

Definitions:

Off the Plan ("OTP") – the purchase of a strata lot which settles once construction is complete and titles have issued e.g. residential, commercial or mixed-use strata lot.

Subdivision – the purchase of land (with or without improvements) which is conditional upon the buyer (not the seller) obtaining approval from the relevant authorities to subdivide the land

This advice only applies to Contracts entered into after the 1st July 2008.

If you purchase a property off the plan (OTP), the Agreement must be lodged with the Office of State Revenue (“OSR”) within two months from the date of the Agreement. Duty is payable two years from the date of the Agreement or Settlement whichever comes first.

If you purchase a subdivision property i.e. the offer is subject to the Buyer obtaining approval to subdivide the land, the Agreement must be lodged with OSR within two months from the date of the Agreement. Duty is payable two years from the date of the Agreement or Settlement whichever comes first.

HOWEVER if the property is on-sold the first Buyer must notify OSR of the on-sale within two months from the date of the on-sale Agreement. The Commissioner will reassess the assessment on the first Contract and issue a new assessment which must be paid within one month.

For example: On the 11th July 2008 the Buyer enters into an Agreement to purchase an Apartment OTP. Settlement is August 2010. The Agreement is lodged with OSR on the 11th September 2008, Duty is due on the 11th July 2010. On the 12th December 2008 the Buyer on-sells the property and must notify OSR by the 12th February 2009 of the on-sale. The Commissioner will reassess the first duty assessment and issue a new assessment showing
duty to be due on the 12th March 2009 – 16 months early.

As the notification regarding the onsale provides details of the second transaction OSR will be able to track when the second transaction is due to be lodged.

Previously I had thought that Agreements for onsales of OTP were also eligible to pay duty in two years, it would appear this is not the case i.e. the second buyer must lodge their Agreement with OSR by the 12th December 2009 with payment of duty due one month later say mid January 2010. The second buyer pays duty 13 months after the date of the Agreement.

And before anyone says, but who would know - failing to notify the OSR of the on-sale will incur a penalty of $20,000.00 plus three times the amount of duty avoided!!!!!!!!

When OTP sales were all the rage about 15 years ago, many buyers experienced very good short term capital gains due to the ability to on-sell at a far higher price as there was shortage of these types of investments but no shortage of buyers wishing to buy into them. Now the reverse is true, on-sales of OTP purchases are on the decline, not only as a result of the quieter state of the market but also linked to there being far more developments available now than there are buyers to buy them.

As a result of this new Law, I believe we will see even less on-sales of the OTP product which I am sure will make developers happy. Having acted for a number of developers whose buyers on-sold Apartments and having seen all the problems that created, this is one way developers can minimise on-sales without being seen as the “bad guy”.

Remember this change also affects Agreements for land where the Buyer makes an offer subject to the buyer (not the seller) obtaining approval from the relevant authorities to subdivide the land. In some situations, these Buyers are simply astute investors who see an opportunity to make some money and once the land is under offer they may approach a developer or third party to on-sell the land to and whilst this can and will still occur the first buyer will now have to notify OSR of the onsale and pay the duty early.

For more information refer to the links at the bottom of this page.

Valerie Haskins
11.7.2008

Link to Duties Fact Sheet – Conditional Agreements: http://www.dtf.wa.gov.au/cms/uploadedFiles/CONDITIONAL_AGREEMENTS.pdf

Link to Form “Notification of Further Dutiable Transaction After-Off-The-Plan or Subdivision Conditional Agreement: http://www.dtf.wa.gov.au/cms/uploadedFiles/NOTIFICATION_OF_FURTHER_DUTIABLE_TRANSACTION_AFTER_OFF-THE-PLAN_OR_SUBDIVISION_CONDITIONAL_AGREEMENT.pdf