After a contract of sale becomes unconditional any delays in settlement may result in interest payable in accordance with the terms of the sale contract (Late Settlement Interest).
On 15 June 2022 the Victorian State Revenue Office (SRO) updated its website guidance in respect of Late Settlement Interest. The SRO states that from 1 July 2022, it will introduce an administrative approach in relation to Late Settlement Interest payments forming part of the dutiable value of a Victorian property. As a result, duty must be paid in Victoria by purchasers and developers not only on the dutiable value of the property but also on Late Settlement Interest they pay to vendors.
Why is duty payable on Late Settlement Interest?
In its guidance the SRO states that Late Settlement Interest amounts to consideration which ‘moves’ a transfer of land. As such the interest amount is deemed to form part of the dutiable value of the land and duty must be paid in respect of it.
This updated guidance from the SRO was anticipated following the Victorian Supreme Court’s 2021 decision in Commissioner of State Revenue v 1043 Melton Highway Pty Ltd [2020] VSC 820 (Melton Highway) which we summarised in our earlier article here.
In Melton Highway the Supreme Court determined that default interest formed part of the consideration for duty assessment purposes on the basis that:
...the stipulation to pay interest on late advances moved the transfer in this case. Put another way, consistent with the terms of cl 4.1, the vendors were only prepared to transfer the property on the payment of the additional amounts (characterised as ‘interest’) in circumstances where the ‘loan advances’ had not been made on the dates stipulated.
Justice Kennedy at paragraph 122
Are other late settlement payments included?
At the date of this article the SRO guidance addresses Late Settlement Interest only. Other payments relating to the transfer of dutiable property which are often reimbursed as a result of a late settlement have not been addressed by the SRO. This may include amounts for rates and land tax. Ultimately the question for taxpayers and advisors to consider (albeit a difficult one) is whether such amounts are deemed to move the transfer or are merely and appropriate division of costs.
The SRO’s administrative approach – no duty on amounts less than $5,000
For the 12 months from 1 July 2022, the SRO has introduced an administrative approach that it will only require duty on the Late Settlement Interest on amounts that exceed $5,000. That means for Late Settlement Interest below this threshold will not be subject to duty at this stage.
However, this threshold is specified by the SRO as an “interim measure” and therefore it may decrease or increase in the future. Taxpayers and advisors should confirm the threshold applicable at the date of the relevant transfer.
When is duty payable on Late Settlement Interest?
The Late Settlement Interest is not included in Duties Online. Rather settlement should proceed with the original estimate and separately the SRO must be notified by email of the Late Settlement Interest. The transaction must then be re-lodged for duty assessment within 30 days of settlement.
Does the Late Settlement Interest impact other state concessions, exemptions or grants?
The Late Settlement Interest does not form part of the dutiable value of the land for the purpose of determining a taxpayer’s eligibility to duty concessions, exemptions or grants.
Next Steps
When entering into agreements to defer settlement buyers must be aware of the implications of any default interest which they agree to pay the vendor. In the current market such deferrals are frequent and therefore many re-lodgements will be required.
If you have any questions or require assistance in relodging a duty assessment, please contact:
Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au
Jan Oh
Graduate Lawyer
T +61 3 9611 0158
E joh@sladen.com.au
