Duty must be paid on certain grants, transfers, assignments and surrenders of leases of land in Victoria
The Duties Act 2000 (the Act) was amended with effect from 21 November 2008 to ensure that certain leasing arrangements over land in Victoria are not used as a mechanism for avoiding duty. The amendments are contained in Chapter 2 of the Act and apply to arrangements by which a lease is used to effectively transfer rights in the underlying land and/or the economic benefits of the land.
Under such leasing arrangements, the rights and benefits obtained by the lessee are viewed as being equivalent to the rights and benefits obtained by a person who acquires the land directly through a sale and purchase transaction.
The lessee acquires rights and benefits over the land equivalent to ownership. The consideration paid, or agreed to be paid, is for the acquisition of these valuable rights, while in contrast, the rent payable under the lease is often minimal.
Application of the lease provisions
The provisions apply to leasing arrangements entered into on or after 21 November 2008 where consideration was paid or agreed to be paid in respect of the arrangement and/or the acquisition of certain rights or interests pertaining to the underlying land.
What is a lease?
A lease is defined in the Act to mean a lease of land in Victoria or an agreement for a lease of land in Victoria. It includes a sublease and concurrent lease but not a licence or right to occupy land, which does not contain a grant of the right to exclusive possession.
Consideration refers to all things that a party would receive in order to move a transaction. It therefore includes all monetary and non-monetary consideration provided in respect of an arrangement.
What is rent reserved?
Rent reserved means the rent paid or payable during the term of the lease as well as amounts paid or payable for the right to use the land under the lease.
Exemptions and concessions
The Act sets out various exemptions, concessions and exclusions from the application of the lease provisions.
Duty is calculated at the land transfer rates with reference to the greater of:
- The consideration other than rent reserved that is paid or agreed to be paid in respect of the grant, transfer or assignment of the relevant lease, or
- The unencumbered value of the land that is the subject to the lease
Duty is payable within 30 days of a dutiable transaction occurring. A dutiable transaction involving a lease occurs upon its grant, transfer, assignment or surrender. If duty is not paid within this period of time, a tax default will occur and penalty tax and interest may apply.
Please note the lodgement of transaction documents within the 30-day time period does not remove the requirement to pay duty or prevent a tax default from occurring.
To assist you in understanding your obligations under the Act, the following examples illustrate the application of the lease provisions to certain common situations.
The above examples are provided as a guide only and are not an exhaustive list of the matters or factors we may consider in determining the application of the lease provisions. If you are uncertain about the application of the provisions to your particular circumstances and require further assistance, you can request a private ruling.
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