In Victoria, nominations are relatively simple and, in many cases, don’t attract stamp duty. However, the rules vary between states and can become tricky depending on your precise circumstances. We have set out a simple summary of the rules in Victoria in 2023.
What is Nomination?
A nomination arises where the purchaser (or purchasers) under a real estate contract ‘nominate’ another purchaser to stand in their shoes and settle the purchase of the property. Common examples include:
- nominating from one name to joint names where one partner was unable to attend an auction; and
- nominating from a personal name to a family trust or SMSF established after the auction date.
Once upon a time you would pay stamp duty on the nomination unless the nominee was a related party. If you wanted to nominate a company, the company had to have been in existence at the date the contract was signed. Versions of these restrictions continue to apply in other states and territories.
It used to be the case that you needed to add “and/or nominee” after your name if you wanted to nominate. The standard general conditions no longer require this – but as the general conditions are no longer standard it remains a good idea to insert “and/or nominee” just in case.
Fortunately, the rules, at least in Victoria, are much simpler now.
In simple terms, you can nominate anyone you like (before settlement) and you won’t pay additional stamp duty subject to three conditions. The nominee doesn’t need to be related to you and you can incorporate companies and / or trusts after you sign the contract.
Purchasers should take care with nominations as even after the nomination is signed the original purchaser remains as a form of guarantor for the transaction. That means that if the nominee doesn’t settle then the original purchaser may be liable if the vendor’s losses exceed the amount of the deposit paid.
Nomination at a Profit
The first condition is that if you nominate at a profit then you will incur additional stamp duty on the nomination.
For example, assume you contract to purchase a property for $750,000 and then nominate another purchaser who will pay $800,000. In this example you may have made a profit on the nomination and you will pay stamp duty on $750,000 and the new purchaser will pay stamp duty on $800,000 (commonly known as double stamp duty). However, if the $50,000 was paid in (reasonable) advertising, legal and estate agent’s fees and hence there is no profit you may escape the dreaded double stamp duty.
Land Development
The second condition to watch for is land development. This is defined to include applying for permits and the like as well as physical construction work – even preparing a plan of subdivision. If land development occurs after you sign the contract but before you sign the nomination then you will likely face double stamp duty.
This isn’t a problem if the purchase contract requires the vendor to complete works before settlement and these works are factored into the contract price. An off the plan contract to buy a home that has yet to be constructed is an example of this.
If you are buying a development site – make sure that you nominate first and then start work on your plans and permits.
Parallel Arrangements
The third condition is parallel arrangements. This covers situations where you nominate another party as purchaser where they have signed a building contract, development agreement or other contract in relation to the land. This will be considered as a form of additional consideration and double duty may apply.
Examples of this include:
- A builder who contracts to purchase a vacant lot and then nominates to a purchaser that signs a building contract with that builder;or
- An investor who nominates a joint venturer or funding partner under a joint venture or other profit sharing arrangement.
Restrictions on Nominations
A final thought – some contracts restrict the right of a purchaser to nominate or impose legal fees on nominations. This is quite common with off the plan contracts.
If you may want to nominate – make sure that there are no special conditions that prevent this or limit the time in which you can nominate.
As always, this is a complex area and it is essential to get advice first. Lewis O’Brien and Associates can help you with nominations to ensure that there are no unexpected stamp duty surprises or other complications.
Contract Review Service
Lewis O’Brien and Associates offers a contract review service to help purchasers about to sign a contract. For a fixed fee of $125.00 plus GST you can book a convenient time to review the contract with an experienced lawyer.
We will review the above issues, make sure you are generally aware of the terms of the contract, identify any major problems and also suggest special conditions to tailor the contract to your needs.
If you are about to make one of the largest purchases of your life – this is a simple and cost effective way to protect yourself and feel more comfortable.
To book this service – please click here.
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