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DA-064v2

Ruling history

Ruling no. DA-064v2
Status Current
Issue date 31 October 2023
Date of effect 31 October 2023
Replaces DA-064

This ruling replaces DA-064. It further clarifies the activities contemplated under limbs (a) and (c) of the land development definition contained in the Duties Act 2000. These changes provide more certainty and are beneficial for taxpayers. 

Preamble

The Duties Act 2000 (the Act) imposes duty on a transfer of dutiable property unless an exemption applies. Where land development as defined in section 3(1) has occurred, duty consequences may arise under section 18A, section 28A and/or Part 4A of Chapter 2 of the Act. 

A foreign purchaser who acquired a residential property may be liable for an additional amount of duty which is commonly referred to as the foreign purchaser additional duty (FPAD) under section 28A. FPAD may also be payable under section 18A where a foreign purchaser acquired a property that was not a residential property, but later formed an intention to convert it into a residential property. The definition of residential property in section 3G of the Act includes land on which a person has undertaken or intends to undertake land development to create residential property. Accordingly, in addition to actual land development, the evidence of an intention to carry out land development is also a relevant factor in the context of FPAD. 

Where there has been an acquisition of a transfer right between the contract/option date and settlement of a transfer, the presence of land development can trigger the application of the sub-sale provisions under Part 4A of Chapter 2 of the Act (Sub-sale provisions). For example, land development that occurs between the contract date and the nomination date will attract duty liabilities under the Sub-sale provisions. However, if land development occurred after the nomination date, an exemption from duty is available under the Sub-sale provisions. Where land development occurs before the contract date, it does not trigger the operation of the Sub-sale provisions. Therefore, it is possible for land development to occur without triggering additional duty consequences if it occurs before the contract date or after the nomination date.

Notwithstanding, the meaning of land development is the same in both sub-sale and FPAD contexts.

The purpose of this ruling is to provide clarification on the actions and activities which constitute land development as defined in section 3(1) of the Act. This ruling is provided as a guide only and is not exhaustive. If your circumstances are not covered in this ruling, please apply for a private ruling in accordance with Revenue Ruling GEN.009v3 – General Information on Private Rulings.

Ruling

Under section 3(1) of the Act, land development means any one or more of the following 6 limbs: 

  1. Preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act 1988
  2. Applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land. 
  3. Requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land.
  4. Applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land.
  5. Doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required.
  6. Developing or changing the land in any other way that would lead to the enhancement of its value.

The meaning of limbs (a), (b), (c), (d) and (e) can be attributed to words that have specific meanings in the Subdivision Act 1988, the Planning and Environment Act 1987 and the Building Act 1993. Such specific meanings serve as inherent boundaries to the land development definition.

Broadly, land development is the process of altering the state and/or use of land. The 6 limbs of the definition of land development address key steps of the land development process. Other than limb (f), it is not necessary to demonstrate that there was an increase in value or change in utility of the land for land development to be considered to have occurred. 

In determining whether an activity constitutes land development, the Commissioner will consider the following:

  • facts, circumstances and contexts of each matter
  • tangible and intentional actions associated with developing and changing the use of the land
  • overall effect and consequence of the activity.

Generally, the Commissioner will only take into consideration activities undertaken directly or indirectly by a party to the contract/agreement and nomination, including activities by related parties, agents, associates or tenants who act with the knowledge or consent from any of the parties. An activity that does not fall within the ambit of limb (a), (b), (c), (d) or (e), may still constitute land development under limb (f) if it enhances the value of the land. 

Limb (a) Preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act 1988

Under this limb, initial activities undertaken to prepare a plan of subdivision or measures towards registering a plan of subdivision or consolidation under the Subdivision Act 1988 constitute land development. These activities include:

  1. Drafting or re-drafting a plan of subdivision or consolidation. 
  2. Commissioning a professional review of a plan of subdivision or consolidation for the purpose of amending the plan or preparing a new plan. 
  3. Lodging a plan of subdivision or consolidation for council for certification. 
  4. Undertaking any other works required to obtain a Statement of Compliance. 
  5. Submitting the plan of subdivision or consolidation for registration. 

Activities that are not considered to be land development under limb (a) include:

  • Preliminary research and analysis on the market and the area in order to identify the general development potential of the property, including: 
    • consulting with real estate agents and reviewing sales data
    • reviewing and considering any planning scheme zoning, schedules, overlays, and other council/state planning guideline, policy or requirement that applies to the property
    • looking into the costs involved in the process of subdividing a property.
  • Performing routine property searches or checks against title or an existing plan of subdivision commissioned by another party.
  • General and preliminary inquiries about the process for preparing a plan of subdivision or an amendment to an existing plan. 
  • Informal surveys and measurements of a property.

Example 1


Company A owns a large block of land and has previously lodged a plan of subdivision under the Subdivision Act 1988 to divide the land into multiple lots. Subsequently, Company B enters into a contract to purchase the land. Shortly after that, Company B’s surveyors commenced redrafting the plan of subdivision with a view to increasing the number of lots.

A few weeks later, Company B nominates Company C to receive the transfer right to the land. After nomination, an amendment to the plan of subdivision is lodged in accordance with the Subdivision Act 1988.

Redrafting of the plan of subdivision amounted to land development under limb (a). As the land development occurred after the contract but before the nomination, the Sub-sale provisions apply to charge duty on the dutiable value of the contract and the dutiable value of the nomination, subject to any exemptions that may be applicable. 

Limb (b) Applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land

There are 2 sub-limbs within limb (b): 

  1. Applying for a permit.
  2. Obtaining a permit. 

The satisfaction of either of the sub-limbs amount to land development under limb (b). 

There are 3 types of applications that can be made in relation to permits under the Planning and Environment Act 1987:

  • Application for a permit to a responsible authority.
  • Application for an amendment to an existing permit.
  • Application for an extension of time before the expiry or within 6 months after expiry of an existing permit.

An application for a permit, the granting of the permit or granting of the permit with conditions under the Planning and Environment Act 1987 constitutes land development within the meaning of limb (b). Generally, the Commissioner will not regard a permit solely for maintenance work (for example, a permit for minor repairs on part of an existing fence) as amounting to land development. However, a permit to renovate or restore a derelict property would be considered as land development under limb (b). 

In relation to amending an existing permit, generally, municipal councils require minor amendments to be made in a secondary consent form. The Commissioner takes the view that such minor amendments do not constitute land development under limb (b). 
Asking for an extension of time for an existing permit in itself may not be contemplated in limb (b). However, if the value of the land is enhanced as a result of the time extension, the granting of the time extension may constitute land development under limb (f).

Example 2


In its capacity as the owner of land, Indigo Acre, which is in a residential zone, Company D makes an application for a permit under the Planning and Environment Act 1987 to create residential lots. Subsequently, Company D agrees to sell the land to Company E. After the contract is executed, the permit is granted by the planning authority. Company E then nominates Company F to receive the transfer right to the land. 

The granting of the permit constitutes land development under the second sub-limb. As land development occurs between the contract date and the nomination date, the Sub-sale provisions apply to charge duty on the dutiable value of the contract and the dutiable value of the nomination, subject to any exemptions that may be applicable. 

Example 2A


In its capacity as the owner of land, Violet Acre, which is in a residential zone, Company G makes an application for a permit under the Planning and Environment Act 1987 to create residential lots.

Subsequently, Company G agrees to sell the land to Company H. The contract of sale specifies that the sale is subject to the planning permit being granted and that the contract price includes consideration for the permit. After the contract is executed, the permit is granted by the planning authority. Company H then nominates Company I to receive the transfer right to the land. 

The granting of the permit constitutes land development under the second sub-limb. However, as the consideration given or agreed to be given by Company H under the sale contract includes consideration for the land development, and Company H and/or its associates are not involved in any of the steps relating to the application or granting of the permit, duty is not charged on the sale contract pursuant to section 32J(3)(a) of the Act. Similarly, section 32J(3)(a) would also apply to exempt a contract from duty under the Sub-sale provisions where a building permit application is approved prior to a subsequent transaction being entered into (i.e. limb (d)) under the same circumstances. 

Example 3


Company J enters into a contract to purchase land that is under a lease. After that, the tenant applies for and obtains (in accordance with the terms of the lease) a planning permit to erect a sign for the tenant’s business operating from the site. Under the lease, the tenant has an obligation to remove the sign at the expiry of the lease. The Commissioner does not consider the application and obtaining of the planning permit by the tenant as land development under limb (b).

This position in relation to tenants acting in accordance with the terms of the lease also applies to a building permit under limb (d).

Limb (c) Requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land 

A planning scheme which is issued by the Minister has more extensive coverage than a permit referred to in limb (b). A planning scheme may apply to a municipal district, a number of municipal districts and/or any other area(s) which are not in the same municipal district. 

There is no formal process under the Planning and Environment Act 1987 on how a request is to be made to a planning authority to prepare an amendment to a planning scheme; it is also silent on who can make such a request. 

Where a planning authority has a formal process for requesting amendments to be made to a planning scheme, you will only be considered to have made a request under limb (c) when you have made a request under that formal process. 

Where a planning authority does not have such a formal process, the Commissioner takes the view that a request for the purpose of limb (c) would generally be in the form of a submission. The following are examples where a submission would constitute a request under limb (c): 

  • a submission seeking amendments to a planning scheme that would affect the land 
  • a submission attaching detailed reports in support of proposed amendments to a planning scheme.

Submissions that do not advocate for amendments to be made to a planning scheme do not constitute land development under limb (c). In particular, submissions that seek to preserve the status quo or informal discussions about the process for a planning scheme amendment would not be considered as a request under limb (c).

Example 4


Company K agrees to purchase land, Orange Acre. After the contract is executed, Company K makes a formal request (complete with supporting reports) to the relevant municipal council to amend the planning scheme applicable to Orange Acre. The request is for the municipal council to pursue an amendment with the Minister for Planning to the planning scheme to rezone the land from farming to residential. Subsequently, Company K nominates Company L to receive the transfer right to Orange Acre.

The formal request constitutes land development under limb (c). This is because the request was made by Company K, who is a party to the contract and nomination, and it seeks amendments to the planning scheme that covers Orange Acre. As land development occurred between the contract date and the nomination date, the Sub-sale provisions apply to charge duty on the dutiable value of the contract and the dutiable value of the nomination, subject to any exemptions that may be applicable.

Limb (d) Applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land 

There are 2 sub-limbs within limb (d):

  1. Applying for a permit or approval.
  2. Obtaining a building permit or approval.

If a building permit or approval is issued after the contract date, land development under limb (d) has occurred even if the application was made prior to the contract date.

Under the Building Act 1993, a permit or approval is required to carry out building work except for exempt building work. Building work is defined broadly to mean work for or in connection with the construction, demolition or removal of a building. The application and approval processes for a building permit and an amendment to an existing permit are set out in the Building Act 1993

An application for, and the granting of, a building permit or approval under the Building Act 1993 constitute land development under limb (d). Amendments to a building permit could also constitute land development under limb (f).

Example 5


Company O, which is the owner of land, Green Acre, makes an application for a building permit under the Building Act 1993. Green Acre is in a residential zone and the building permit is for the construction of residential buildings. Subsequently, Company P executes a contract of sale to purchase Green Acre from Company O. After the contract is executed, the building permit is granted by the relevant authority. Sometime later, Company P nominates Company Q to receive the transfer right to Green Acre.

The granting of the permit constitutes land development under the second sub-limb. As land development occurred after the contract but before the nomination, the Sub-sale provisions apply to charge duty on the dutiable value of the contract and the dutiable value of the nomination, subject to any exemptions that may be applicable.

Example 6


Company R enters into a contract of sale to purchase land, Pink Acre. Post contract, Company R engages a firm to provide professional building advice and prepare reports as initial steps to applying for a building permit. Shortly after that, Company R nominates Company S to receive the transfer right to Pink Acre. A building permit application is then made after the nomination date. In the context of the Sub-sale provisions, the initial steps for the building permit application do not constitute land development under limb (d) because this limb requires an application to be made. However, consideration should be given to limb (f) if the relevant advice and reports lead to an enhancement of the value of Pink Acre. 

In the context of FPAD, if the building permit is for the construction of residential buildings, Pink Acre would be considered as residential property under section 3G(1), as the preparatory steps demonstrate an intention to use the land solely or primarily for residential purposes.

Consequently, if Company S is a foreign purchaser, it would be liable for FPAD on the subsequent transaction.

Limb (e) Doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required 

This limb captures activities undertaken on land which require a permit or approval under the Building Act 1993 and which are done with or without obtaining such permit or approval. The Commissioner takes guidance from the Building Act 1993 and its subordinate instruments regarding the type of works that would constitute land development under this limb. 

Example 7


Company T enters into a contract to purchase land, Red Acre, which has a derelict building on it. Company T seeks permission from the vendor to demolish the derelict building in order to clear the site in preparation for further development later. The vendor grants permission for the demolition work as the building is derelict and has little to no value. Subsequently, the building on Red Acre is demolished by persons engaged by Company T. After that, Company T nominates Company U to receive the transfer right to Red Acre.

The demolition of the building constitutes land development under limb (e) because a building permit or approval is required under the Building Act 1993. This is the case whether or not a permit or approval for the demolition was sought. As the demolition work was carried out between the contract date and the nomination date, duty consequences arise under the Sub-sale provisions. 

However, if the contract provided for the vendor to demolish the derelict building and clear the site before settlement, it is considered that the consideration given or agreed to be given under the contract includes consideration for the demolition work. Accordingly, if Company T and or its associates were not involved in any of the demolition works, additional duty is not chargeable pursuant to section 32J(3)(a).

Example 8


Alice enters into a contract to purchase an apartment off the plan. At the time of signing the contract, construction work has yet to commence. Two months later, Alice decides that a home with a backyard would be more suitable to her lifestyle. For this reason, Alice sells her transfer right to the apartment by way of nomination to David. By then, some of the construction work has commenced.

The construction work constitutes land development under limb (e). However, as the consideration given or agreed to be given by Alice under the sale contract includes consideration for the construction of the apartment, and Alice (or any of her associates) has no involvement in the land development, the contract is not subject to duty under the Sub-sale provisions pursuant to section 32J(3)(a).

Limb (f) Developing or changing the land in any other way that would lead to the enhancement of its value 

Limbs (a), (b), (c), (d) or (e) of the definition of land development encompass activities typically involved in developing land regardless of whether they lead to an enhancement of its value.

Limb (f) is focused on activities that enhance the value of the land. Even if an activity falls outside the ambit of the other limbs, it may nevertheless constitute land development under limb (f) if it leads to the enhancement of the value of land.

Example 9


Company V enters into a contract to purchase Grey Acre, which is contaminated. After receiving permission from the vendor to access Grey Acre to decontaminate the land, Company V undertakes the decontamination activities on the land. The decontamination activities enhance the value of Grey Acre. Subsequently, Company V nominates Company W to receive the transfer right to Grey Acre. The decontamination activities constitute land development under limb (f) as they enhance the value of the land.

Activities that do not alter the physical characteristics of land may still amount to land development if they lead to an enhancement of the value of the land. These may include a removal of a covenant on title (e.g. removal of single dwelling covenant) or a removal of land from the Victorian Heritage Register. A rezoning of land may also amount to land development under limb (f) where:

  1. a Minister rezones land as a result of submissions from any of the parties to the contract (including their associates and persons under their instructions), or 
  2. any of the parties to the contract (including their associates and persons under their instructions) made a submission in support of a proposed rezoning of land.

If there is an activity that leads to an enhancement of the land value, it is irrelevant whether there are any other contemporaneous activities that may have a negative impact on the land. Where necessary, the Commissioner will rely on the opinion of the Valuer-General or another competent valuer to determine if there has been a change in the value of the land and whether that change resulted from the activity or market forces.

Example 10


Company X, a foreign purchaser, enters into a contract to purchase land, Purple Acre. At the time of contract, Purple Acre was zoned for commercial use. Subsequently, the Minister rezones the Purple Acre and the surrounding area into a mixed-use zone without the involvement or prior knowledge of any of the parties to the contract.

Despite the rezoning, Company X continues with its original intent and uses the land for a commercial purpose. Under these circumstances, the Commissioner accepts that the land remains as non-residential property for the purposes of assessing duty.

Therefore, Company X is not liable for FPAD at the time of transfer.

However, should Company X subsequently form an intention to use the land for residential purposes, FPAD will become payable under section 18A.

Example 11


Company Y enters into a contract to purchase land, Yellow Acre, which has a derelict house on it. Subsequently, Company Y receives permission from the vendor to access Yellow Acre for the purpose of replacing the entire roof on the house at its own cost. After replacing the roof, Company Y discontinues this project in pursuit of an alternative venture. Consequently, Company Y nominates Company Z to receive the transfer right to Yellow Acre.

The roof replacement amounts to developing or changing Yellow Acre leading to an enhancement of its value and therefore constitutes land development under limb (f). As the land development occurred after the contract but before the nomination, duty consequences arise under the Sub-sale provisions.

Without limiting the breadth of limb (f), the Commissioner considers the following examples as not amounting to land development under this limb:

Example 12


Company ZA, the owner of Olive Acre, enters into a contract to sell the land to Company ZB. After that, Company ZA continues to mow the grass regularly to keep Olive Acre looking neat and tidy. Sometime later, Company ZA notices minor damage on part of the fence and a storm water pipe. To preserve the value of Olive Acre, Company ZA makes minor repairs to the damaged part of the fence and the broken storm water pipe. The Commissioner does not consider these activities as land development under limb (f). This is because such activities are carried out to maintain rather than enhance the value of the land.

Example 13


Amelia agrees to purchase a home from Sam. Shortly after the execution of the contract, a storm destroys the roof of the home. Sam makes a claim from his insurance policy for the roof damage. The insurer accepts the claim and proceeds to repair and restore the roof to its original condition before the storm. The Commissioner considers the roof repairs as value preservation activities which do not amount to land development under limb (f).

COMMISSIONER OF STATE REVENUE

Rulings do not have the force of law. Each decision made by the State Revenue Office is made on the merits of each individual case having regard to any relevant ruling. All rulings must be read subject to Revenue Ruling GEN.001.

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