With a predicted shortage of dwellings in 2021 and beyond due to restrictive lending practices following the recent Bank Royal Commission, another hindrance to supply is being proposed.
In the face of an estimated $5.2b slump in expected Stamp Duty revenue, the State Government has turned its attention to development agreements as a potential recoup mechanism.
Previously developers have avoided, or reduced, Stamp Duty liability by entering into agreements with landholders to develop the land without actually purchasing it. Currently duty is only payable where the developer’s interest is greater than 50% in a corporate land holding.
The proposed State Taxation Acts Amendment Bill 2019 will bring about significant change in this regard.
Under the Bill, developer’s agreements will essentially be treated as a transfer of land. For sites worth more than $1M, developers will be seen as having acquired a beneficial interest and therefore pay 5.5% Stamp Duty on the value of their economic entitlement*. The 50% threshold will be removed and duty will apply to all land owners, including Trusts and individuals.
Developers may pay duty on up to a deemed* 100% of the value of the land depending on the terms of the development agreement.
If passed, it will be interesting to see how this Bill will affect future new housing supply and the ultimate cost of that housing to consumers.
*A good explanation of economic entitlement and deemed 100% ownership is kindly supplied by KCL Law, supplied here: https://www.kcllaw.com.au/news/property-update-development-agreements-new-duty-obligations-for-developers/
Written by Nick Breheny
"Nick commenced his career in the Eastern Suburbs and brings over 30 years’ experience in commercial property sales and leasing with an emphasis on development sites and investment property."