Forums / Property Investing / Creative Investing / Stamp duty issues on lease options – VIC

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  • Profile photo of rustyw007rustyw007
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    Hi all, have been reading up on rent to buy strategies using sandwich lease options (or back-to-back lease options) where the investor takes a lease+option to purchase from seller, then sub-leases with option to buy.
    There are stamp duty issues with options in VIC where the option includes above market rent.
    My question is; are sandwich lease options affected by this stamp duty issue; ie if I as the initial option holder do not exercise the option but assign this to the sub-lessee, so that the contract of sale is between the initial seller and sub-lessee, and I’m just the middle man who oversees the transaction and takes a profit, am I liable for stamp duty?
    I understand how standard lease options would be caught by this but with a sandwich option I am not a party to the eventual sale contract so how would the SRO ever find out??
    Is anyone out there doing this in Vic and if so which solicitor are you using?
    Cheers, Russell

    Profile photo of TerrywTerryw
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    You could check the Duties Act (VIC)
     

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of Paul DobsonPaul Dobson
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    Hi Russell

    The new rules regarding Options in Vic don't relate to 'above market rent'.  If you take an Option over a property in Vic, without a Lease, no Stamp Duty is payable.

    Stamp Duty however is payable on the 'strike price' of an Option, if the Option holder also has a Lease on the property.

    These new rules where brought in because long term Lease/Options were being used in large commercial transactions and the State Revenue Office was missing out on a lot of revenue  ;-)   Lewis O'Brien, a solicitor and member of the Vendor Finance Association, has been fighting a tough battle against these new regulations with the SRO but to no avail so far.  At the moment the SRO unofficially admit they didn't mean to 'rope in' residential property but, to date, they aren't about to change the rules.

    As a result of this, vendor finance Instalment Contracts have become more popular in Vic.  You'll find some lively discussions on the subject at the next Melbourne meeting of the Vendor Finance Association.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
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    Profile photo of scott_hutchscott_hutch
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    Does anyone have knowledge or experience with Stamp Duty on Option Agreements used for renovations in Victoria?

    I do renovations for a living and I'm very interested in using Option Agreements to control the property during the reno, re-assign to a future buyer once complete and have them execute the option and take ownership of the renovated property.  I'm usually in and out of a property within 6 months.

    I just spoke with the SRO and they said that stamp duty is payable on the contract price agreed in the option if land development is performed while I hold the option.  They define Land Development as, among other things, any change that improves the value of the land.  For the purpose of duties, they define land as including all capital fixtures (buildings) that sit on the land.  The person I spoke with said Land Development would include things as simple as landscaping or painting the house.

    I have used options and lease/options in the past, but not for many years now.

    Is this the experience of others, that stamp duty is payable as a result of doing a renovation to a property controlled via an option (no lease, just a call option)?

    Thanks,

    Scott.

    Profile photo of JeanoJeano
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    Hi I bought the Rick Otten Rent to Buy course some time ago but never used it, I decided it was time do  something with it

    and got out all the folders etc, I emailed the VIC solicitor who was on the Rick Otten Course Lewis O'Brien, and emailed him he was very helpful, he said Stamp Duty applies in Vic

    Cheers

    Profile photo of Paul DobsonPaul Dobson
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    Hi Scott

    I'd suggest you add a bit of lateral thinking to find a form of paperwork that will get you the result you want that doesn't include an Option document  ;-)

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
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    Profile photo of henry.tanakahenry.tanaka
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    good suggestion Paul!

    Profile photo of scott_hutchscott_hutch
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    Thanks Jeano and Paul.  I know there is always a way, its just a matter of finding the right person to help with the right paperwork…

    Scott.

    Profile photo of Paul DobsonPaul Dobson
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    Hi Scott

    That should be pretty easy  ;-)

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
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    Profile photo of PrimePropertyInvestorPrimePropertyInvestor
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    Hi Russell, 

    Sandwich deals are a good choice. We are doing the same here in UK, the only difference how we go around stamp duty is that when we put a tenant buyer in place – agreement is actually between tenant buyer and original owner of house and stamp duty is paid by tenant buyer.

    Hope it helps.

    All the best!

    Profile photo of Paul DobsonPaul Dobson
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    Hi Ilva & Alexei

    Unfortunately your suggestion of a sandwich lease/option won't work in Victoria with regard to the non payment of Stamp Duty.  As mentioned above, when you take control of a property in Victoria with a lease and an option, Stamp Duty is immediately triggered.  Hence, with a sandwich L/O (sometimes called a back to back L/O) Stamp Duty would be payable twice.

    There is other legal paperwork that will however get the job done for Russell, without triggering Stamp Duty.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
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    Profile photo of Jacqui MiddletonJacqui Middleton
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    I'm intrigued… what's this mysterious other paperwork you're referring to Paul?

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    Profile photo of AUSPROPAUSPROP
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    From what I can see it is the opposite in WA? An instalment contract triggers stamp duty but a RTB doesn't? 

    Profile photo of AUSPROPAUSPROP
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    the thing with RTB is…. if there is a danger of rates jumping 2 to 5% in the next few years, how can the vendor protect against that? How can the vendor avoid carrying a hefty interest rate bill whilst the RTB'er takes their merry time to buy?

    Profile photo of Paul DobsonPaul Dobson
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    Hi Ausprop

    Regarding Instalment Contracts, Stamp (Transfer) Duty is payable, in all States except Victoria, within a certain number of days of 'exchange' of contracts.  In Victoria, the trigger for the payment of Stamp Duty is the transfer of title (for Instalment Contracts).

    Yes, it is difficult to cover increasing interest rates using the Rent To Buy (RTB) technique but it can be covered by using an Instalment Contract.  I guess it boils down to no one technique being all things to all buyers and sellers.  In some cases we put buyers in a RTB for 2 or 3 years, to save the Stamp Duty and then roll them over into an Instalment Contract.  It's just a matter of working out what's best for your buyer.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
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    Profile photo of TerrywTerryw
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    Wouldn't it make much sense if all the stamp duty and land tax laws across australia were unified. It wastes so much time having to consider the different laws in each state like this!

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of Paul DobsonPaul Dobson
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    Couldn't agree more.  The cost to the country of the duplication and variations must be enormous.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
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    Profile photo of AUSPROPAUSPROP
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    thanks Paul and Terry – think I had naturally worked my way to this conclusion so looks like I will put one person on RTB and another on instalment contract. The person that wants RTB wants the security of rolling over to IC in 2 years, presumably an option in the RTB agreement to roll over to IC has been done before?

    Profile photo of Paul DobsonPaul Dobson
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    Hi Ausprop

    In NSW it's easy as you have to attach the Contract of Sale to the Option, so we just attach an Instalment Contract.

    For WA, I'd suggest you get your lawyer to specify, in the Option, that upon exercising the Option the buyer will have the choice of a standard Contract of Sale or an Instalment (Terms) Contract with the following features …….

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
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    Profile photo of AUSPROPAUSPROP
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    thanks so much Paul

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