In the recent decision of Gulliman Pty Ltd v Commissioner of State Revenue [2020] VCAT 804, the Victorian Civil and Administrative Tribunal (Tribunal) held that the discharge of debt owed by vendor to purchaser in respect of previous transaction amounts to non-monetary consideration and, therefore, was subject to land transfer (stamp) duty.
While it is well known that duty is calculated on the purchase price on an acquisition, what is not so well known is that duty is calculated on other payments and obligations that form part of the “consideration” of the acquisition. For example, the High Court decision of Lendlease found that obligations to conduct certain works amounted to part of the consideration as they “moved” the acquisition.
Background
Gulliman Pty Ltd (re-)acquired title to a parcel of land (Relevant Property) from Joopiter Pty Ltd in 2014. Gulliman was originally assessed to duty of $25,570 on the transfer based on a dutiable value of $500,000, representing the cash paid to acquire the Relevant Property from Joopiter. In 2019, the Commissioner reassessed duty based on a dutiable value of $1,105,000, representing the cash paid of $500,000 and a further $605,000 relating to the discharge of a debt which was owed by Joopiter to Gulliman in respect of Joopiter’s prior acquisition of the Relevant Property from Gulliman in 2010. Additional duty was imposed, together with a penalty tax and interest. Gulliman contended that the correct dutiable value was $500,000 as that is what it paid for the Relevant Property.
Tribunal findings
The Tribunal held that the extinguishment of a liability can amount to consideration for duty purposes. In the present case, Gulliman sold the Relevant Property to Joopiter in 2009 for $1,210,000. The 2009 Contract included a special condition, by which an option was granted by Joopiter in favour of Gulliman for Gulliman to acquire three townhouses to be constructed by Joopiter on the land. If the option was exercised, the value of the units was agreed at $605,000 and the amount payable on settlement was to be reduced by an equivalent sum. Gulliman was entitled to a mortgage (the Mortgage) over the Relevant Property to secure Joopiter’s obligation to provide transfer of titles to Gulliman and/or payment of $1,210,000.
In 2014 the parties entered into a deed of settlement, in which Gulliman agreed to pay the sum of $500,000 at settlement, and discharge Joopiter from any liability arising in any way concerning the Mortgage and repayment of the principal sum secured by the Mortgage. The Tribunal considered that the express discharge of the Mortgage and the underlying indebtedness ($605,000 owed) constituted non-monetary consideration that was provided ‘for’ the transfer of the Relevant Property by Joopiter to Gulliman. Joopiter would not have transferred the Relevant Property to Gulliman if the only consideration was the cash payment of $500,000.
The Tribunal also refused to remit penalties and interest on the basis that Gulliman was an experienced property developer who was familiar with duty and should have sought advice on the duty consequences of the extinguishment of the liability.
Main takeaway – consideration does not always equal purchase price
Purchasers of properties should consider whether any non-monetary amounts are also being provided. This could include the discharge of debts of the vendor or related parties, extinguishment of existing liabilities between the parties, entering into other agreements in relation to the land (eg development agreements) and exchanging fixtures or chattels. If that is the case, the purchaser will need to consider whether such amounts are consideration that have moved the acquisition and, therefore, whether they are dutiable.
To discuss this further or for more information please contact:
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E: pbroderick@sladen.com.au
Denise Tan
Senior Associate
T +61 3 9611 0160 | M +61 438 714 965
E: dtan@sladen.com.au
Laura Spencer
Senior Associate
T +61 3 9611 0110
lspencer@sladen.com.au
Lucy Liang
Graduate Lawyer
E lliang@sladen.com.au
