Prior to 19 May 2022, Put and Call Options (or simply “Options”) in NSW were strategically utilised within the property development community as a means to secure a property at a fixed price, with benefits such as:
- Delaying stamp duty becoming payable to Revenue NSW until such time as the Options were exercised and Contracts entered into.
- Not paying stamp duty at all if the Option is not exercised.
- Retaining flexibility as to the purchasing entity and structure – utilising nomination provisions to nominate a different entity to enter into the Contract, and ultimately purchase the property.
However, as of 19 May 2022, Revenue NSW has increased the scope of transactions that are dutiable to include “a change in beneficial ownership” as part of a large-scale overhaul of the Duties Act 1997 (NSW). Most notably, the grant of an Option to purchase property is deemed to be a change in beneficial ownership.
Therefore, for Options entered into from the introduction of these changes:
- Stamp Duty is payable within 3 months of the Option Agreement being entered into and is assessed on the Call Option Fee and any consideration paid for the grant of the Option. Importantly, a genuine security deposit is excluded from this. The Commissioner’s Practice Note (CPN) 025 defines features of a security deposit as:
- Wholly refundable if the Option is not exercised.
- Paid into an escrow account.
- No break or other fees are attached.
- Duty paid on the grant of an Option is not refundable if the Option is not exercised.
- Duty paid on the grant of an Option is not credited towards stamp duty payable on a subsequent Contract.
- If additional consideration is payable to the Option Holder to nominate a third party or another entity to exercise the Option and/or enter into a Contract arising from the Option, stamp duty is also payable on this consideration.
Therefore, purchasers of property in NSW that wish to, or are required by the vendor, to utilise Option Agreements must be extremely careful to ensure that stamp duty requirements are strictly adhered to, so as to avoid fines and interest for non-compliance. This is especially the case if the parties wish to use avenues such as security deposits to minimise immediate duty implications.
Long Saad Woodbridge’s Property Law Team boasts decades of experience within the property sector across all asset classes and jurisdictions in Australia, and pay keen attention to legislative changes to ensure that we remain at the forefront of property lawyers, and to deliver prompt, practical and diligent legal advice across each transaction.
Should you wish to speak with a member of our Property Law Team, please do not hesitate to call our office on (02) 9279 4888.
Important Disclaimer: The content of this article is general in nature and for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.