Off the plan duty concessions

Duty concessions available for off the plan sales need to be understood by both vendors and purchasers.

Vendors selling off the plan properties often emphasis the potential for “huge stamp duty savings” and, indeed, duty is calculated on such transfers at a concessional rate, making them appealing to potential purchasers.  But unless the parties understand the extent of the concession the purchaser may be disappointed and the vendor potentially liable for misrepresentation.

The duty concession is available wherever the contract anticipates building work being performed during the course of the contract on the basis that duty is calculated on the value of the property as at the contract date and is not payable on the value of any building works constructed between contract and settlement. The concession is available whether the property is a stand alone home, a unit in a small development or a lot on a multi-storey plan of subdivision.  It is also available, on a proportional basis, provided that any construction is to be undertaken, with the full concession available if total construction takes place during the contract, diminishing to no concession if construction was complete as at the contract date.

Calculating duty is an important task for the solicitor for the purchaser but can only be undertaken on the basis of information provided by the vendor in the form of an Off the Plan Statutory Declaration that provides the basis for calculating dutiable value.  The vendor’s obligation to provide this document arises from GC.10.1(a)(ii) of the standard contract that requires the vendor to do all things necessary to enable the purchaser to become registered.  The purchaser is unable to register the Transfer until duty is assessed and duty cannot be assessed in relation to these transactions without the Declaration.

The vendor may choose to use the Fixed Percentage Method or Alternative Method to calculate the cost of construction.  Unless the contract requires the vendor to adopt the Alternative Method, the vendor will generally adopt the simpler Fixed Percentage Method.  The percentage of the contract price allocated to construction is:

single dwelling    45%       multi-dwelling    60%       high rise    75%

If construction has not commenced as at the contract date then the concession will be calculated by reducing the contract price by the amount equal to the full construction cost calculated by reference to the Fixed Percentage and then calculating duty on the reduced consideration.

If the contract price is $600,000 and the contract is signed prior to commencement of construction then duty is calculated as follows:

Single dwelling $600,000 x 45% = $270,000 construction cost
minus $270,000 (100% construction cost)
dutiable value = $330,000
multi-lot (up to 3 storey)  $600,000 x 60% = $360,000 construction cost
minus  $360,000 (100% construction cost)
dutiable value =  $240,000
high rise (4 storey & above)  $600,000 x 75% = $450,000 construction cost
minus  $450,000 (100% construction cost)
dutiable value =  $150,000

If construction is 25% complete when the contract is signed then the cost of post contract construction will be reduced to 75% of the construction cost.  The deduction from the contract price will therefore be less, resulting in a higher dutiable value and higher duty as the percentage of post contract construction deceases.