When you obtain a property, whether you buy it, receive it as a gift, acquire it through a trust or otherwise, duty is charged on the dutiable value of the transaction. Dutiable value is the price you paid for the property or its market value, whichever is greater, and includes any GST payable.
When the transaction involves unrelated parties dealing with each other independently, the price paid for the property is generally considered to be the market value of the property.
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While the price paid for a property is normally a sum of money, sometimes other means are used or included, such as:
- Provision of objects, such as a car or valuables.
- An assumption of liability.
- A promise to pay an amount of money.
- A guarantee.
- An exchange of property.
- The performance of an obligation by the purchaser.
- Covenants given by a lessee to a lessor under the terms of a lease.
The market value of a property is the price for which it may be reasonably sold, free from encumbrances, on the open market. In valuing a property, we do not take into account encumbrances, such as a mortgage.
Tim buys Rose Cottage for $700,000, which is subject to an existing mortgage of $200,000.
The encumbered value of the property is $500,000, which is $700,000 less $200,000.
The unencumbered value is $700,000.
The off-the-plan (OTP) concession applies to certain purchases of land and building packages or refurbished lots. When applied, it reduces the amount of duty you pay by decreasing the dutiable value of your property, by deducting the costs of construction/refurbishment occurring on or after the contract date, from the contract price.
There are two methods of calculating the off-the-plan concession – the fixed percentage method and the alternative method – and your vendor must choose one.
About six months before the settlement of your property, your vendor will advise your conveyancer or solicitor of the dutiable value of your property after applying the off-the-plan concession. You can then contact your conveyancer or solicitor to get this value if you want to estimate the duty on your property.
Note: When the off-the-plan transaction involves unrelated parties dealing with each other independently, the costs are generally deducted from the contract price. In other circumstances, the dutiable value of the property is it's market value as at the contract date.
Valuations required for related parties
Unrelated parties dealing with each other independently are commonly described as trading at arms-length. In these circumstances, it is assumed that the amount paid for a dutiable transaction is the market value.
If your transaction involves related parties, such as relatives or related companies or an employment relationship, or parties acting together in some way, you need to declare the market value of the property, supported by an independent valuation from a qualified valuer.
Even where parties are trading at arms-length, where the business and land acquired is $1,000,000 or more, a valuation may be requested (see Revenue Ruling DA-029).
Special rules apply to determining the dutiable value of leases.
There are particular considerations about the dutiable value of retirement village land where:
- The retirement village operates on a loan-lease, lease-premium and loan-licence arrangement.
- The retirement village owner is the registered proprietor and beneficial owner of the freehold title of the land.