Legal Tip 142: Stamp duty on Long Settlements

Stamp Duty and Long Settlements

(focusing on NSW)

Stamp duty usually is payable within a certain time frame after exchanging contracts. For the majority of property purchases this is not an issue as settlement generally happens within 5 to 6 weeks after the contract is entered into.


But there can be issues if settlement is longer. There are 2 main reasons why a settlement may be longer:

1. Off the plan purchases

2. Deceased estates


In NSW the general rule is stamp duty must be paid within 3 months of entering a contract of sale. Liability for duty arises when the contract is signed (s 12 Duties Act). If there is no contract then the liability will arise when the transfer is signed. But the duty doesn’t need to be paid until 3 months after the liability arises because of s17. However if the purchaser is mortgaging the property the mortgagee will require the duty to be paid before or at settlement.


However, with off the plan properties the date the payment of duty is due has been extended by s49A of the Duties Act. Duty for off the plan is due at the earlier of:

- Completion (settlement), or

- Assignment (such as on-selling), or

- 12 months from the date of the agreement (contract)

DUTIES ACT 1997 - SECT 49A Purchases “off the plan”


Deceased estates often don’t settle when expected because contracts are often entered before Probate or Administration is granted. The executor/administrator has no authority to sell the property of the deceased until this occurs so contracts are usually subject Probate/Administration being granted and with settlement being x days after probate is granted and this could be on average of 3-6 months or so. This is a potential trap for young players because their conveyancers often do not point this out and there is a penalty which is not realised until close to settlement.


If duty is not paid on time a ‘tax default’ arises under the Taxation Administration Act 1996 (NSW) (TAA). If the duty is not paid on time and a tax default arises there is interest charged on the amount of tax unpaid and this is calculated on a daily basis from the day it was due to the date of payment, s 21 TAA. The interest rate is currently 10.01% pa.


If you do get hit with the interest penalty you can always ask the commissioner to waive or reduce it. S 25 of the ITAA gives the commissioner the power to reduce the interest by any amount. TAXATION ADMINISTRATION ACT 1996 - SECT 25 Remission of interest


For the tax deductibility of the penalty interest on late stamp duty see my tax tip.

 

See
Tax Tip 142: Deductibility of Stamp Duty Penalty Interest Tax Tip 142: Deductibility of Stamp Duty Penalty Interest