The LPLC continues to see claims involving land transfer duty arising from the nomination of a substitute purchaser or additional purchaser. Nominations are not just an administrative item in a conveyancing transaction. If not managed properly, nominations may result in more than one assessment of duty, which is commonly referred to as “double duty”.
Almost all claims that the LPLC has seen relating to double duty could have been avoided or successfully defended had the solicitor:
- Warned the purchaser at the commencement of the retainer about nomination, double duty and timing risks; and
- Provided specific written advice before effecting the nomination.
How double duty arises
Sections 32J and 32C of the Duties Act 2000 (Vic) (Act) provide that duty may be assessed more than once in certain nomination arrangements (commonly described as “sub-sales”).
Broadly, double duty may arise where:
- A vendor agrees to transfer land to an original purchaser; and
- The land is later transferred to another purchaser (often through nomination); and either land development occurs before nomination (section 32J) and/or additional consideration is provided (section 32C).
In some circumstances, more than two assessments of duty can arise (for example, multiple nominations).
What constitutes “land development”?
Section 3(1) of the Act defines land development broadly to include:
- Preparing a plan of subdivision or taking steps to have it registered
- Applying for or obtaining a planning permit
- Applying for or obtaining a building permit or approval
- Requesting an amendment to a planning scheme
- Doing anything requiring a building permit or approval
- Developing or changing the land in any way that enhances its value.
Importantly:
- Lodging an application alone may be sufficient.
- Activity undertaken with the express or implied knowledge or consent of relevant parties (for example, the vendor) may be relevant.
- The definition is broader than many purchasers (and some practitioners) assume.
Revenue Ruling DA-064v2 (Meaning of land development | State Revenue Office) provides guidance on what the Commissioner of State Revenue considers to constitute land development. All practitioners should understand this ruling.
The recurring claim pattern
A common scenario that the LPLC continues to see is as follows:
- A purchaser signs a contract in their individual name.
- Planning or building applications are lodged or subdivision steps are taken or building works commence.
- The purchaser later nominates a company, trust or related entity.
- The State Revenue Office assesses duty on both the original contract and the sub-sale arrangement.
- The client alleges they were never warned about the risk of double duty and that, had they been warned, they would have nominated before undertaking any land development, or not nominated at all.
Practical risk management tips
1. At the commencement of the retainer
This is the most important risk management opportunity.
Establish the client’s intentions
At the outset, ask clients the following questions:
- Do you intend to nominate another person or entity?
- Are you purchasing for a company or trust?
- Do you intend to apply for a planning or building permit before settlement?
- Do you intend to subdivide, develop, renovate or alter the property before settlement?
If retained before the contract is signed, recommend that the contract be executed in the name of the ultimate intended purchaser wherever possible.
Incorporate written warnings into initial letters
Every initial letter to purchaser clients should contain a clear warning about:
- The consequences of undertaking land development before nomination;
- The consequences of paying any additional consideration;
- The need to notify you before undertaking any land development.
Suggested wording - Initial letter of advice: Nomination and duty risk If you decide to nominate an additional or substitute purchaser, there are important duty consequences you need to consider. Additional duty may be payable if:
“Land development” is defined broadly and can include applying for a planning or building permit, preparing or registering a plan of subdivision, requesting an amendment to a planning scheme, carrying out works requiring approval, or changing the land in a way that enhances its value. In some circumstances, both the original purchaser and the nominated purchaser may be assessed for duty. It is critical that you notify us immediately if you are considering nomination or undertaking any land development activity so that we can advise you before any steps are taken. |
Before preparing or effecting a nomination
Specific advice must always be provided if instructions to nominate are received, even if the issue was already covered in the initial advice.
Before preparing nomination documents, solicitors should:
- Confirm whether any “land development” has occurred, in particular, whether any planning or building applications have been lodged or any subdivision steps have been taken.
- Ask whether the nominee (or associate) is providing any additional consideration.
- Confirm compliance with contractual nomination conditions.
- Advise whether a vendor nomination fee is payable.
- Advise that preparation of nomination documents may be outside scope.
- Advise that the original purchaser remains liable under the contract.
Document the client’s responses in writing.
Suggested wording - Specific nomination advice letter: You have instructed us to nominate [insert nominee] as purchaser under the contract dated [insert date]. We advise that under the Duties Act 2000 (Vic), an additional assessment of duty may arise if: • land development has occurred since the contract date and before nomination; or “Land development” is defined broadly and may include lodging planning or building permit applications, subdivision steps, or other activities that enhance the value of the land. If these circumstances apply, duty may be assessed on both the original contract and the sub-sale arrangement (commonly referred to as double duty). The State Revenue Office determines whether additional duty is payable based on the particular facts. You remain liable under the contract even after nomination. If the nominated party defaults, the vendor may pursue you for performance or damages. Please confirm in writing that:
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Use the Double Duty Flowchart as a practical tool
The LPLC has created a double duty flowchart to assist solicitors in managing the double duty risk to:
- Identify when double duty will apply;
- Identify when there is no double duty risk;
- Determine when advice must be given;
- Structure your file checklist process.
Timing is everything to… - Legal Practitioners' Liability Committee
Additional risk reduction strategies
Nomination is not an administrative step. It is a potential tax event. Practitioners should also consider:
- Updating purchaser intake forms to include nomination and land development questions.
- Requiring partner or senior solicitor review before effecting a late nomination.
- Attaching the flowchart to nomination advice letters.
- Recommending specialist taxation advice in higher-risk transactions.
- Conducting periodic training for property staff on nomination risks.
Failure to manage the timing of land development and nomination continues to expose practitioners to avoidable professional liability claims.
