Transfers of options to purchase land

Transfers of options to purchase land 

A transfer of an option to purchase land in NSW is a dutiable transaction under the Duties Act 1997 (NSW) (Duties Act).  Also, under section 9B a deemed transfer is taken to occur if an option holder, for valuable consideration: 

1 nominates another person to exercise the option; or 

2 nominates another person as purchaser or transferee of the land the subject of the options on or before the exercise of the option; or 

3 agrees to a novation of the option, or otherwise relinquishes rights under the option, so that another person obtains a right to exercise the option or to purchase the land. 

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Who pays the duty? 

The person liable to pay the duty is the transferee. In the case of a nomination or novation, a transferee includes a person who obtains the right to exercise the option or purchase the land. 

When am I liable for the duty? 

Your liability for duty arises when the transfer /assignment occurs. Where there is a nomination or novation, the liability date is: 

1 in the case of a nomination – when the nomination is made; or 

2 in the case of a novation – when the option holder agrees to the novation or otherwise relinquishes rights under the option. 

When must the duty be paid? 

Duty must be paid within three (3) months after the liability arises. 

How is duty calculated? 

Duty is calculated on the dutiable value of the option being transferred / assigned, being the greater of the consideration or the unencumbered value of the option. 

When the option is exercised, duty is charged on the dutiable value of the dutiable property. The consideration for the transfer of the land will be taken to include the amount or value of the consideration provided by the transferee for the option (whether for its grant, transfer / assignment, exercise or otherwise – refer to section 22(4) of the Duties Act). 

The duty payable on the transfer / assignment of the land will, however, be reduced by the amount of duty (if any) paid by the transferee on the transfer of the option (refer to section 64D of the Duties Act i.e. the assignee, nominee must be the same as the transferee who initially paid the amount of ad valorem duty (at the general rate under section 32) on the transfer / assignment / novation of the land. 

What are the duty implications on put and call options?  

In addition to the duty payable by the transferee on a transfer (or deemed transfer) of an option, the transferor/assignor is liable to call option assignment duty where there is also a put option in place. 

Where a person (A) has a right under a call option requiring another person (B) to sell dutiable property, and B has a right under a put option requiring A to purchase the dutiable property, an assignment or transfer by A to C, for valuable consideration (refer to section 107) will be liable to duty on the dutiable value of the dutiable property. A is the party liable to pay the duty. 

The dutiable value of the dutiable property will be taken to include the amount or value of the consideration provided by A for the option. 

When will a valuation be required? 

Evidence of value by a suitably qualified person will be required if the parties are related persons or the consideration is nominal.