Know Who You Are When Purchasing, or Risk Double Stamp Duty

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Purchasing Special Condition Under Contract.

I am seeing a particular special condition fairly frequently in contracts these days and it gives me great cause for concern.

The special condition I speak of is the special condition allowing a buyer under a contract to substitute another buyer prior to settlement. The mechanism is to have the parties agree to terminate the first contract, and enter into a second contract with the correct buyer noted. This special condition is sometimes used (in error) when the buyer hasn’t had a chance to set up the company or trust the buyer wishes to use to purchase the property (or business) or is just unsure of what entity it should use.

Unfortunately, a special condition such as this is very likely to result in stamp duty being imposed on both contracts, that is, “double” stamp duty.

In Australian National Airlines Commission v Commissioner of Stamp Duties (Qld) 87 ATC 4218 the Supreme Court of Queensland (Full Court) handed down a judgment relating to an application for refund of stamp duty paid on a contract terminated under such a special condition.

The special condition in that case stated that, prior to possession, the purchaser was entitled to nominate another purchaser by giving the vendor notice in writing accompanied by an agreement to rescind the contract.

In reliance on the condition, a new purchaser was nominated and the parties purported to rescind the original contract. A refund was sought in respect of the stamp duty on the original contract and the Commissioner refused to refund the duty on the ground that the contract had not been rescinded, but rather, had been fully performed.

On appeal, the Court held that the contract was discharged by performance (in that the act contemplated by the special condition was, in fact, performed) and the contract was therefore not rescinded and accordingly, there was no entitlement to a refund of duty under section 54(7) of the Queensland Stamp Act 1894.

Stamp duty is also payable on the second contract. As a result, if such a special condition is included that states that the buyer may nominate another buyer in the future and a new contract may be entered into, and the buyer actually uses the special condition, “double” stamp duty will be payable.

An alternative is to use a put and call option in these circumstances. Of course, this may become expensive. Alternatively, if the buying entity to be ultimately used is in existence and has authorised the first purchaser, in writing, to act as its agent prior to the contract being signed, and the nominated buying entity pays the deposit, an “or nominee” situation may be used. However, if not done correctly this path may also lead to double duty. Careful drafting is very important here.

The safest avenue for all concerned is to obtain adequate and experienced legal advice before signing any contract.

Contact MMLaw for further information.


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The content published in this Blog is in the form of academic papers and the opinions expressed herein are generalised. The information provided is for educational purposes, not specific legal advice.

The application of any principles referred to can alter from case to case and accordingly you should seek independent legal advice in respect of your individual circumstances.


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