Amendments to Duties Act (NSW): Transfer of call options
14 June 2005The State Revenue Legislation Amendment Bill 2005 (Bill) was tabled in parliament on 10 June 2005. Importantly, the Bill proposes to introduce duty on a transfer of a call option over dutiable property in circumstances where there is also a put option over the same property. An arrangement by which such a call option is novated for valuable consideration may also be treated as a transfer. The duty will be payable by the transferor of the option and calculated at rates of up to 5.5 per cent on the dutiable value of the underlying dutiable property the subject of the option (defined below). The duty imposed on the transferor is in addition to duty currently payable by a transferee of a call option over land in New South Wales, and is also in addition to the duty currently payable by the transferee when it exercises that option.
The operation of the proposed amendments is best illustrated by the following example.
- Seller grants A a call option conferring a right on A or its assignee to purchase New South Wales land from seller. A grants seller a put option conferring on seller a right to require A or its assignee to purchase the land from seller.
No duty is payable on the grant of the call and put options. - A transfers the call option to B.
A is liable to duty on the transfer of the call option as if it were a transfer of the underlying land. That duty is calculated on the ‘dutiable value’ of the land, which is the greater of the unencumbered value of the land and the sum of the consideration for the transfer of the call option and the exercise price for the option. Vendor duty is not separately levied on this transfer.
In addition, B is liable to duty on the transfer of the call option. That duty is payable on the dutiable value of the option. The dutiable value of the option is likely to be nominal if a nominal option fee is payable for the grant of the option and the exercise price for the option is equal to the market value of the land. - If B exercises the option and receives a transfer of the land, B pays duty on the transfer of the land. B does not receive any credit for the duty it has paid on the transfer of the call option from A, nor for the duty paid by A on the transfer of the call option to B.
- Alternatively, if B transfers the option to C, B is liable to duty on that transfer as if it were a transfer of the underlying land. However, as B has already paid duty in receiving a transfer of the option (from A), B will receive a credit for the duty it has paid. This credit will be of limited value to B if B has paid nominal duty only on the transfer to it of the call option. In addition, C is liable to duty on the transfer of the call option. That duty will be payable on the dutiable value of the call option. The dutiable value is likely to be nominal if a nominal option fee is payable for the grant of the option and the exercise price for the option is equal to the market value of the land.
- If C exercises the option and receives a transfer of the land, C pays duty on the transfer of land to it (and receives no credit for the duty it has paid on the transfer of the call option from B).
The effect of the amendments discussed above is to treat the transfer of a call option over dutiable property (in respect of which there is a corresponding put option) as a sub-sale of the dutiable property, imposing duty as if there was a further transfer of the underlying dutiable property. While these new provisions will have significant impacts for the property industry, it is important to recognise that they apply to all forms of dutiable property.
The above amendments are scheduled to come into effect on the date the Bill receives royal assent.
The nature of these changes highlights the importance of considering appropriate transaction structuring at the earliest stage, so that transaction documents can be drafted appropriately.
Amendments to Victorian Duties Act: sub-sale provisions
It is interesting to note in the above context that the State Taxation Act (General Amendments) Bill currently before the Victorian Legislative Assembly is proposing to make substantial changes to the sub-sale provisions under the Duties Act 2000 (Vic).
This article was prepared by Anna Yeung, Senior Associate and Jinny Chaimungkalanont, Solicitor.
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