The Victorian Civil and Administrative Tribunal’s (VCAT) decision in Hartman v Commissioner of State Revenue (Review and Regulation) [2022] VCAT 28 (Hartman Case) is a rare decision on the application of the sub-sale “double duty” provisions in the Duties Act 2000 (Vic) (Act).

What will trigger a sub-sale “double duty” assessment?

In broad terms, sub-sale (double) duty is triggered when a person other than the initial purchaser who entered into a contract of sale to purchase property becomes the eventual transferee of the property (typically via nomination under a contract for sale of land), and one of the following applies:

Additional consideration is given or agreed to be given in order for the subsequent purchaser to obtain the transfer right (nomination) from the initial purchaser; or
Land development occurs in relation to the property or part after the sale contract is entered into, but before the nomination occurs; or
There is an option under which a subsequent purchaser acquires the property where there is additional consideration and/or property development.

Key facts in the Hartman Case

The Hartman Case concerned the application of the sub-sale provisions relating to land development. The relevant facts included:

Mr Hartman (the Taxpayer) was a builder and property developer who entered into a contract of sale in October 2014 to acquire a property in Northcote (Property) from an unrelated party (Vendor).
The purchaser was specified as Mr Hartman ‘and/or nominee’.
In February 2015, an application for a planning permit was submitted to the local council.
In June 2015, the Taxpayer nominated two related companies to take the transfer of the Property as tenants in common.
Settlement took place on 1 July 2015 and duty was paid.
Subsequently, the Commissioner issued a further assessment for duty under the sub-sale provisions.

Key issues in the Hartman Case

The key issues in the Hartman Case are as follows:

First issue: Whether the exemptions in sections 34 and 36 of the Act apply such that no sub-sale duty is applicable?

Second issue: Whether the Tribunal has the discretion to step into the shoes of the Commissioner to not issue an assessment?

The Taxpayer argued that the apparent purchaser exemption in section 34 or the transfer to a beneficiary of a fixed trust exemption in section 36 should apply and no duty is applicable.

The Taxpayer further argued in the alternative that the Tribunal could step into the shoes of the Commissioner and exercise the discretion to not issue an assessment under the Taxation Administration Act.

VCAT’s findings in the Hartman Case

VCAT found that since the definition of ‘land development’ included the application for or obtaining a permit under the Planning and Environment Act 1987 (Vic), a sub-sale situation had arisen here.

In relation to the Taxpayer’s argument that the apparent purchaser exemption in section 34 of the Act applied, VCAT found that this exemption did not apply as the wording of the exemptive provision did not contemplate the facts of the sub-sale situation here and therefore would be incapable of exempting the subject matter of the Assessment.

Similarly, VCAT found that the exemption relating to a transfer to a beneficiary of a fixed trust in section 36 of the Act did not apply as there was no ‘transfer’ of property that occurred in the context of the Vendor to the initial purchaser, rather due to the nomination effected by Mr Hartman, the transfer of land only occurred between the Vendor and the nominee. Moreover, the Vendor was an unrelated party to Mr Hartman and there was no trust relationship between them.

In relation to the second issue, the Tribunal ultimately found that no real basis had been advanced by the Taxpayer for it to depart from the principle established in Pitard and Others v Commissioner of State Revenue [2019] VCAT 1074 (Pitard) that VCAT does not have the ability on review of an assessment to exercise the discretion not to issue an assessment. Since no authority had casted doubt on Pitard, VCAT found that it ought to follow the decision unless and until it was overturned or there was some new argument or authority advanced requiring it to be revisited.

The Commissioner’s decision to disallow the Taxpayer’s objection to the sub-sale duty assessment was confirmed and the Taxpayer was liable to pay sub-sale (double) duty.

Be cautious when you nominate and other key takeaways

The decision serves as a cautionary reminder that whenever a purchaser other than the initial purchaser who entered into a contract of sale to purchase property becomes the eventual transferee of the property, there is the likelihood for sub-sale (double) duty applying.

This is so, even where the nominated entity is related and there is no intention to otherwise avoid duty on the transfer of the property to a third party (via the nomination process).

In our experience, many purchasers and their advisors are unaware of the broad application of the sub-sale duty provisions, particularly where property development is involved – noting the very expansive definition of property development.

It is therefore vital that any nominations under an existing contract only occur after a careful consideration of the sub-sale provisions. Alternatively, the correct purchaser should be named in the contract from the start – therefore, avoiding the sub-sale double duty provisions that arise because of nominations.

Unsure if sub-sale (double) duty applies?

The sub-sale provisions, especially that relating to the breadth and precise meaning of the term ‘land development’ are highly complex.

If you are unsure whether sub-sale duty applies to your circumstance, our state taxes team can assist with understanding whether sub-sale duty will be triggered, including what your options are if sub-sale duty has been imposed, including objecting to an assessment or providing representation at the various courts or tribunals.

Please feel free to contact our specialist team at:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au