When you obtain a property, whether you buy it, receive it as a gift, acquire it through a trust or otherwise, duty is charged based 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.
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, and
- 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 the costs of construction/refurbishment occurring on or after the contract date.
When the OTP transaction involves unrelated parties dealing with each other independently, the costs are generally deducted from the contract price. In other circumstances, the property’s market value is used rather than the contract price.
Purchasers eligible for the OTP concession wanting to estimate their duty liability need to contact their vendor to get the dutiable value of their property, including the OTP concession. This is because the concession is calculated using information provided by, and a method chosen by, the vendor.
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, and
- The retirement village owner is the registered proprietor and beneficial owner of the freehold title of the land.