INSIGHT

Double-duty provisions to receive much needed guidance on what constitutes 'land development'

By Tim Chislett, Craig Milner, Anne Montesano
Property & Development Tax

But does it help or hinder? 6 min read

The sub-sale provisions in the Duties Act 2000 (Vic) (the Act) are a source of much frustration for property developers, investors and lawyers because the broad definition of 'land development' results in uncertainty about its application in practice.

In that context, it is pleasing to see that the Victorian State Revenue Office (the SRO) has released a draft revenue ruling (the Draft Ruling) in an effort to provide practical guidance as to what types of activities fall within the SRO's interpretation of 'land development'. Unfortunately, however, the Draft Ruling does not overcome the existing uncertainty in some common situations and arguably seeks to expand the types of activities that may be considered 'land development'.

Comments on the Draft Ruling are open until 6 November 2020. We encourage property developers and investors to provide comments and we provide some food for thought in the comments which follow.

What are the sub-sales provisions?

The sub-sale provisions in the Act apply to treat certain transactions, which commonly involve nomination under an option or contract of sale, as if the nomination is a 'sale' and transfer (ie a sub-sale of the land) and, in those circumstances, duty will be charged as two separate transactions (a concept often referred to as 'double duty'). The sub-sales provisions can apply where 'land development' occurs between the contract date and the nomination of a substitute grantee or purchaser.

The land development provisions most often arise for consideration where a party wants to prepare a plan of subdivision, lodge a planning application or otherwise undertake an activity to enhance the value of the land. Our thoughts on those aspects of the Draft Ruling are set out below. The full definition of 'land development' is set out at the end of this note.

What is land development?

Land development is defined in the Act, in relation to land, to mean any action which satisfies any one or more of the following six limbs:

  1. Preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act 1988 (Vic) (the Subdivision Act).
  2. Applying for or obtaining a permit under the Planning and Environment Act 1987 (Vic) (the P&E Act) in relation to the use or development of the land.
  3. Requesting under the P&E Act a planning authority to prepare an amendment to a planning scheme that would affect the land.
  4. Applying for or obtaining a permit or approval under the Building Act 1993 (Vic) in relation to the land.
  5. Doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required.
  6. Developing or changing the land in any other way that would lead to the enhancement of its value.

Preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act (Limb (a))

This limb of the definition of 'land development' has, in our experience, caused the most frustration and confusion for the industry. Unfortunately, the Draft Ruling still leaves many questions unanswered and arguably could expand the types of activities that are considered to be 'land development'.

Currently, the SRO guidance on this limb provides that preliminary consultative planning steps undertaken in respect of land would not ordinarily fall within the meaning of land development. That guidance specifically includes where a party seeks advice from internal or external consultants regarding a proposed plan of subdivision that was yet to be prepared.

In contrast, the Draft Ruling provides that engaging professional surveyors to undertake surveys of the property or the local area and/or prepare reports for the purpose of a plan of subdivision or consolidation could constitute land development. In our view, such activities should fall within the same characterisation as 'preliminary' activities that fall short of the line before an activity becomes 'preparing a plan of subdivision or taking any steps to have a plan registered'. These are activities that should not lead to a double-duty event and we would urge reconsideration as part of the consultation process.

More helpfully, and consistent with the appropriate interpretation of the wording in paragraph (a), the Draft Ruling does provide that informal surveys and measurements of a property or preliminary research and analysis on the market and the area in order to identify the general development potential of the property will not be categorised as 'land development'.

Applying for or obtaining a planning permit (Limb (b))

This limb of the definition … captures both applying for and obtaining a planning permit. This can be a trap for the unwary.

This limb of the definition of 'land development' is one of the most widely considered. It is important to note that it captures both applying for and obtaining a planning permit. This can be a trap for the unwary. The Draft Ruling makes it very clear that if a planning permit is obtained between the contract date and a nomination date (even if neither the purchaser nor substitute purchaser took any action to apply for the planning permit), it will be considered 'land development and a sub-sale can be triggered. As such, it is important for the relevant party to know whether any applications for planning permits have been made at the time they enter into the original option or contract if they intend, or there is a prospect that they wish, to exercise a right of nomination.

The Draft Ruling also helpfully clarifies other actions that will not generally be considered land development, including:

  • minor amendments to be made in a Secondary Consent Form; and
  • asking for an extension of time for an existing permit.

Developing or changing the land in any other way that would lead to the enhancement of its value (Limb (f))

This limb operates as a 'catch all' provision to ensure any change or development of land that would lead to enhancement of its value may be considered 'land development'. Given the broad nature of this limb, it has often led to uncertainty amongst developers and investors as to when an action might enhance the value of land in a way that engages the sub-sale rules. The Draft Ruling has provided some further clarification as to the types of activities that will be caught, including:

  • decontaminating activities;
  • the removal of a covenant on title; and
  • the removal of the property from the Heritage Register.

The Draft Ruling also clarifies that general repair works ordinarily will not be considered 'land development', though the fact this is considered necessary to clarify underlines the difficulty in applying this limb in practice.

In our opinion, the SRO's views in the Draft Ruling still leave many questions unanswered. We think it would benefit from some additional commentary and examples, including to clarify that the entry into an agreement for lease should not amount to 'land development'.