Is transfer duty payable on a put and call option?

Is transfer duty payable on a put and call option?Is transfer duty payable on a put and call option?

KEY TAKE-OUTS


Put and call option explained

A Put and Call Option Deed is an agreement between an owner of a property and a potential purchaser. The agreement gives the potential purchaser the exclusive right to buy the property or nominate a third party of their choosing to do so. This is the ‘Call’ component of the Option Deed. The ‘Put’ component allows the property owner to require the potential purchaser to enter into a Contract for Sale to purchase the property.

The Deed contains terms and conditions, usually the most critical of which are the option fees and option expiry dates – Call Option expiry date and Put Option expiry date. The Call Option expiry date is the latest date that the potential purchaser or their nominee has, to exercise the option and enter into a Contract for Sale of Land. The Put Option expiry date is the latest date that the property owner has, to require the potential purchaser to enter into the Contract for Sale. The Option fee is the amount paid by the potential purchaser to the owner of the property for granting them the option.

Is transfer duty payable on a put and call option agreement?

To help prevent the avoidance of duty, from 19 May 2022 the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 which makes changes to the Duties Act 1997, requires duty be paid on the granting of an option over dutiable property i.e. the Option Deed.

How is transfer duty calculated for a put and call option agreement?

Ad valorem duty is payable on the greater of the call option fee or the value of the option (including any GST), within 3 months of the date of the Option Deed. The minimum amount of duty payable is $10 irrespective of the amount of the call option fee.

For clarity, please note:

  • evidence of value is only required if the parties are related persons or there is a pre-existing arrangement between the parties where they are not acting at arm’s length; and
  • duty is not payable on the put option fee, just the call option fee

Example 1. The parties entered into a put and call option deed on 1 July 2022 with a call option fee of $1. The amount of duty payable is $10 (even though this is more than the ad valorem duty calculated on $1). Payment is due by 1 October 2022.

Example 2. The parties entered into a put and call option deed on 20 June 2022 with a call option fee of $1,000. The amount of duty payable is $22.50. Payment is due by 20 September 2022.

Acting for a foreign person/entity? For the purposes of duty on this transaction, don’t worry, it doesn’t attract surcharge purchaser duty.

What happens when the Option is exercised?

Once the Option is exercised in a put and call option agreement, the Purchaser is required to pay duty on the transfer of the option and the Contract for Sale. Duty paid on the grant of the option does not entitle the Purchaser to get a credit on the duty payable when the option is exercised.

What if the Option is not exercised?

In the instance that the option is not exercised, you are not entitled to a refund of the duty paid on the grant of the option.

Requirements for processing the transfer duty for a put and call option agreement?

Duty on the granting of an option is available to process via Electronic Duties Return (EDR) under the document type ‘grant of option’. Whilst a Purchaser/Transferee Declaration Form is not required, you are required to keep a completed ‘Declaration for the Grant of an Option’ together with the evidentiary requirements (as set out by Revenue NSW) with the EDR records.


ABOUT MELINA COSTANTINO

Melina Costantino

Melina joined the Coutts team in 2010 working as a Licenced Conveyancer within our Property & Conveyancing team, based out of our Campbelltown office. Her commitment to client services saw her progress further and into the role of a Senior Licensed Conveyancer in July 2022.

She graduated with a distinction in the Advanced Diploma of Conveyancing and is accredited with the Australian Institute of Conveyancers NSW.


For further information please don’t hesitate to contact:

Melina Costantino
Senior Licensed Conveyancer & JP
info@couttslegal.com.au
1300 268 887

Contact Coutts today.

This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.