There have been many changes to the stamp duty implications of a purchaser exercising their right to nominate over the years. Once upon a time you would pay stamp duty on the nomination unless the nominee was a related party and if you wanted to nominate a company, the company had to have been in existence at the date the contract was signed.
Fortunately, the rules, at least in Victoria, are much simpler now.
In simple terms, you can nominate anyone you like (before settlement) and you won’t pay additional stamp duty subject to three conditions. The nominee doesn’t need to be related to you and you can incorporate companies and / or trusts after you sign the contract.
The first condition is that if you nominate at a profit then you will incur additional stamp duty on the nomination. That is, if you contract to purchase a property for $500,000 and nominate another purchaser who will pay $525,000 then you have made a profit and you will pay stamp duty on $500,000 and the new purchaser will pay stamp duty on $525,000 (commonly known as double stamp duty). However, if the $25,000 was paid in (reasonable) advertising and estate agent’s fees and hence there is no profit you may escape the dreaded double stamp duty.
The second condition to watch for is land development. This is defined to include applying for permits and the like as well as physical construction work – even preparing a plan of subdivision. If land development occurs after you sign the contract but before you sign the nomination then you will likely face double stamp duty. If you are buying a development site – make sure that you nominate first and then start work on your plans and permits.
The third condition is parallel arrangements. This covers situations where you nominate another party as purchaser where they have signed a building contract, development agreement or other contract in relation to the land. This will be considered as a form of additional consideration and double duty may apply.
A final thought – some of the contracts we are seeing at the moment are restricting the right of a purchaser to nominate or imposing legal fees on nominations. This is quite common with off the plan contracts. If you may want to nominate – make sure that there are no special conditions that prevent this or limit the time in which you can nominate.
As always, this is a complex area and it is essential to get advice first. Lewis O’Brien and Associates can help you with nominations to ensure that there are no unexpected stamp duty surprises.
Book a one on one session with Lewis O’Brien today – CLICK HERE – and make sure that you don’t accidentally incur a stamp duty liability you weren’t expecting.