Stamp Duty is now payable on late settlement and default penalty interest
The Victorian State Revenue Office announced that as of 1 July 2022 Late Settlement Interest is deemed to form part of the dutiable value of a property, being the consideration paid to transfer the property. Accordingly, stamp duty paid by a purchaser at settlement is calculated on the dutiable value of a property in addition to Late Settlement Interest that is paid to a vendor as a result of a delayed settlement.
The dutiable value of a property is the value in which stamp duty is determined to be due and payable at settlement by a purchaser. Dutiable value is based on the price a purchaser pays for a property or market value, whichever is the greater. In some transactions, in the event a property transaction attracts GST, then GST is included in the value of the dutiable property.
Late Settlement Interest is a contractual right in which the vendor can charge a purchaser penalty interest for a delay in settlement at no fault of the vendor, which is calculated on per annum basis on any monies outstanding under the contract of sale. Currently in Victoria, the standard REIV form of contract of sale states that penalty interest is calculated at 2% per annum above the interest pursuant to the Penalty Interest Rates Act (Vic) 1983 (currently at a rate of 10%). However, some contract special conditions specify a rate greater than this.
When is duty payable on Late Settlement Interest?
The State Revenue Office have advised that the interim position as of 1 July 2022, for a 12-month period, is that a minimum dutiable value of $5,000.00 for Late Settlement Interest applies. This means that a transaction must be re-lodged for reassessment if:
- The contract or arrangement was entered into on or after 1 July 2022; and
- The Late Settlement Interest is $5,000.00 or more.
At present, transactions that incur additional consideration resulting in Late Settlement Interest of less than $5,000.00 do not need to be re-lodged for reassessment.
How does Late Settlement Interest effect duty concessions, exemptions and the First Home Owner Grant?
The State Revenue Office have confirmed that during the interim period, Late Settlement Interest is not to form part of the dutiable value of the land for the purposes of determining the eligibility for the following concessions and exemptions:
- Principal place of residence concession;
- First home buyer duty exemption, concession or reduction;
- Off-the-plan concession;
- Pensioner concession;
- Young farmer exemption or concession; and
- First Home Owner Grant.
(All of the above concessions are based on the purchase price being below a specific amount).
Could settlement be delayed because of Late Settlement Interest?
In the instance where Late Settlement Interest applies, settlement is able to proceed on the basis of the original duty calculation on the dutiable value, without Late Settlement Interest. However, the State Revenue Office must be notified of all Late Settlement Interest within 30 days of settlement taking place by re-lodgement post settlement for reassessment. In the event this does not occur within the 30 day period, then the State Revenue Office holds discretion to charge further penalties.
Final thoughts
At the time of writing, the State Revenue Office has only provided guidance on Late Settlement Interest only. Any other payments, which may include additional rates and service fees, land tax charges and additional legal costs and fees passed onto a purchaser by the vendor as a result of the delay to settlement, have not been addressed by the State Revenue Office.
For further information in relation to stamp duty payable on delayed settlements then please contact our property team.
