The State Revenue Office (SRO) has released a revenue ruling (DA-064) which sets out its views on the meaning of ‘land development’ in the context of the sub-sale provisions.
Broadly, ‘double duty’ may be triggered under the Duties Act where a developer enters into a contract of sale to acquire property and nominates its ultimate landholding entity to settle the acquisition. If ‘land development’ has occurred prior to the date of nomination, duty is imposed on both the developer and ultimate purchasing entity. The second imposition of duty will be calculated on the improved value of the developed land, which may be significant.
Under the Duties Act, land development is defined to mean:
- preparing a plan of subdivision or taking any steps to have a plan registered under the Subdivision Act 1988;
- applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land;
- requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land;
- applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land;
- doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required;
- developing or changing the land in any other way that would lead to the enhancement of its value.
The Ruling discusses each of these definitions, which we have considered below.
(a) Preparing a plan of subdivision or taking any steps to have a plan registered
Initial activities which result in registration of a plan of subdivision will constitute land development, for example:
- engaging professional surveyors to undertake surveys of the property or prepare reports;
- drafting or re-drafting a plan of subdivision or consolidation;
- commissioning a professional review of a plan of subdivision or consolidation;
- lodging a plan for certification or submitting a plan for registration.
Activities such as preliminary market research in order to identify the development potential of the property, including consulting with real estate agents, will not constitute land development. Also excluded are preliminary inquiries about the process of preparing a plan of subdivision and informal surveys and measurements of the property.
The SRO previously took the view that engaging a council or servicing authority to review or comment on a plan, either inside or outside of a formal process and irrespective of whether it resulted in any changes to the plan, would constitute land development. This broad interpretation has been pared back in the final Ruling.
(b) Applying for or obtaining a permit under the Planning and Environment Act 1987
An application for a permit, and the granting of a permit, will constitute land development. While a permit solely for maintenance work would not amount to land development, a permit to renovate or restore a derelict property would be caught.
An application for minor amendment to an existing permit would not constitute land development. While this would include requesting an extension of time for an existing permit, if the value of the land is enhanced as a result of the extension, the grant of the time extension may constitute land development.
(c) Requesting a planning authority to prepare an amendment to a planning scheme
Examples of requests to planning authorities that constitute land development include:
- a submission seeking amendments to a planning scheme that would affect the land; or
- 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.
Applying for or obtaining a permit or approval under the Building Act 1993
An application for a permit or approval, and the grant of a permit or approval, will each constitute land development.
If a building permit or approval is issued after the contract date, land development has occurred even if the application was made prior to the contract date.
We note that under limb (e) of the definition, land development includes activities undertaken on land which require a permit or approval under the Building Act 1993 and which are done without obtaining such permit or approval.
(f) Developing or changing the land in any other way that leads to the enhancement of its value
The above limbs (a) – (e) capture various activities undertaken in relation to the land, irrespective of whether they lead to an enhancement in the value of land. Limb (f) is focused on activities that enhance the value of land.
Examples of activities which would fall under limb (f) include:
- decontamination activities;
- removal of a covenant on title (e.g. removal of a single dwelling covenant);
- removal of land from the Victorian Heritage Register;
- the rezoning of land;
- the replacement of a derelict roof. In contrast, land development will not occur where a storm-damaged roof is repaired and restored to its original condition.
The Ruling demonstrates the breadth of activities that will constitute land development. The SRO notes that the Ruling is provided as a guide only and is not exhaustive. Accordingly, the specific circumstances in a particular matter will need to be considered carefully in assessing whether land development has occurred.
For example, in a matter we recently advised on, the vendor had made renovations to a kitchen on the property that the purchaser acquired under contract. When the purchaser instructed that they wished to nominate a related entity, we advised there was a risk of double duty as the renovations would enhance the value of the property and be caught by limb (f).
The risk of double duty is a real consideration in any transaction where the purchaser wishes to make a nomination. If you have acquired land and wish to make a nomination, please contact the Tax team to consider the risk of exposure under these provisions.
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