It is first thing on Tuesday morning when you receive a call from your client Lachlan who wants you to review an auction contract for a farm that has come up for sale next to his. The auction is scheduled for that afternoon so Lachlan, as he always does, has really left things until the last minute. You had a terrible night’s sleep after a big blue with your husband about his spendthrift ways, and aren’t feeling all that sharp, but you have the time to review the contract. Lachlan also wants you to attend the auction with him.
You review the contract and can’t see any issues. You meet up with Lachlan at the auction and he tells you prior to the auction starting that he wants to buy it for his son, Oliver, to commence the first stage of his succession plan.
The auction starts and the bidding is intense. Another farmer who owns property adjoining the farm the opposite side to Lachlan is there and they are both desperate to win. Finally, the hammer goes down and Lachlan has won, at a cost of $9.5m.
Lachlan reminds you that he is buying the farm for Oliver, so, without much time to think, you tell the vendor's solicitor that the purchaser is Lachlan in trust for Oliver.
When you go to work the following day, you prepare the usual letters you need to when acting on a farm purchase.
The property cost $9.5m so you tell Lachlan the costs will include stamp duty of $507,990 on the contract plus $20 for the duplicate contract and transfer.
“Wow”, Lachlan says when you tell him this, “they certainly don’t miss you!” Lachlan got a little caught up in the excitement of it all and whilst he was aware he had to pay stamp duty, he didn’t realise it was going to be quite that much. He is ok with it though because he really wanted the property and has had a lot of good years behind him, so won’t have any trouble coming up with the money.
Relieved that the last minute stress of the contract review and auction is over, and also that you have a good matter to bring some money in and support your husband’s spendthrift ways, you send the documents to the OSR for stamping.
About 3 weeks later, you receive a letter from the OSR advising that in addition to normal stamp duty there is also $507,990 to pay as stamp duty on the declaration of trust in the contract, so duty totalling $1,015,980.
“Oh my god,” you think, “what have I done?”
The letter from the OSR directs you to section 294 of the Duties Act 1997 (“the Act”) and paragraph 6 of OSR ruling DUT 31 (“the Ruling”).
Section 294 says that a contract that relates to several distinct matters for which different duties are chargeable, is to be separately and distinctly charged with duty in respect of each such matter, as if each matter were expressed in a separate instrument. In this case the contract not only constitutes an agreement for purchase of land but also creates a declaration of trust over the property that did not exist before.
“No”, you think to yourself as your stomach starts to churn, “surely that can’t be right, I’ll look at the ruling.”
As you read through the ruling, any glimmer of hope you were holding onto starts to deteriorate.
In paragraph 6 of the ruling, the OSR says (in part):
“…….a contract for sale will be considered to be liable to duty as a declaration of trust, in addition to the duty payable as an agreement for sale or transfer, where the purchaser is described:
a. as trustee for a named person or persons
With all hope gone, and a heavy heart, you prepare to notify Lawcover and deliver the news to Lachlan……
One obvious way to avoid the sting, amongst others, would have been to have the contract in Lachlan’s name then, when it comes time to do the transfer document, Oliver could be the transferee on the transfer and duty will still be payable as if the transfer would have been in conformity with the contract because the purchaser under the contract (Lachlan) and the transferee under the transfer (Ian) were related persons when the contract was entered into (section 18 (3) of the Act).
By Amanda Tully
This article is general information only and should not be relied on without obtaining further specific information.