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Is duty payable on a call option in NSW?  It is now.


The State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 (NSW) (Bill) was introduced into NSW Parliament on 23 March 2022 and was assented to on 19 May 2022. The Bill is now referred to as State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (Amending Act) and it amends the Duties Act 1997 (NSW) (Duties Act) and the Taxation Administration Act 1996 (NSW) (TAA).

This article focuses on the following key amendments and their impact, as well as how the changes are proposed to be administered by NSW Revenue according to the Legislation Amendment Act 2022 Guide (Guide):

  1. changes in beneficial ownership of dutiable property;
  2. acknowledgment of trust;
  3. tax avoidance and penalties; and
  4. Australian based developer surcharge purchaser duty and land tax.

Changes in beneficial ownership

A dutiable transaction under the Duties Act is expanded to include a transaction that “results in a change in beneficial ownership of dutiable property, other than an excluded transaction”.

Duty will be payable by the party who obtains the beneficial ownership or whose beneficial ownership is increased when the beneficial ownership changes.

A “change in beneficial ownership” includes:

  1. creation of dutiable property;
  2. extinguishment of dutiable property;
  3. a change in equitable interest in a dutiable property;
  4. dutiable property becoming the subject of a trust; and
  5. dutiable property ceasing to be the subject of a trust.

Under the Duties Act, dutiable property includes, amongst other things, land in NSW and an option to purchase land in NSW.

The amendments introduced by the Amending Act have the effect of creating a broad dutiable base impacting transactions involving land in NSW, unless the transaction is specifically excluded.

An “excluded transaction” includes, at this point in time:

  1. the purchase, gift, allotment or issue of a unit in a unit trust scheme;
  2. the cancellation, redemption or surrender of a unit in a unit trust scheme;
  3. the abrogation or alteration of a right relating to a unit in a unit trust scheme;
  4. the payment of an account owing for a unit in a unit trust scheme;
  5. the grant, renewal or variation of a lease for no consideration;
  6. the grant of an easement for no consideration;
  7. the grant of a profit a prendre for no consideration;
  8. the grant of a security interest within the meaning of the Personal Property Securities Act 2009 (Cth);
  9. the change in a trustee’s right of indemnity;
  10. the creation of dutiable property by statute;
  11. a transaction prescribed by the regulations; and
  12. a combination of the above.

By way of example, the following common transactions which are not previously subject to duty will now be captured under the new duty net unless the regulations or the Commissioner notes otherwise.

  1. Entry into a call option. The Guide states that ad valorem duty will be calculated on the option fee paid for the grant of the option. Not all payments will be dutiable option fees, for example a genuine security deposit or due diligence fee, should not attract duty under the new provisions. Nominal option fees may still be required to be stamped with $10. This should not be confused with call option assignment duty and duty charged on the transfer of options under other parts of the Duties Act.

Duty paid on the call option cannot be credited towards the duty payable when the option is exercised. Duty paid on the call option will also not be refundable if the option is not subsequently exercised. This may add significant additional costs for a developer wishing to pay a substantial option fee to secure the rights to a site.

  1. Granting, renewal or variation of a lease for consideration. It is unclear at this stage what is to be considered as “consideration” for the granting, renewal or variation of a lease. It is also unclear how duty will be assessed given the existing lease premium duty provisions under section 53A of the Duties Act.
  2. Granting of an easement for consideration. Again parties will need to consider how they approach some issues, for example there is even more reason for some rights to be negotiated as temporary licences rather than easements.

Fortunately surcharge purchaser duty will not apply to transactions that are liable for duty as a result of this change, but premium transfer duty (if applicable) can apply.

The above changes will affect transactions entered into on or after 19 May 2022, but not those which arose after that date if the transaction occurs in accordance with an agreement or arrangement entered into before then.

Acknowledgment of trusts

A further provision of the Amending Act is the introduction of the new section 8AA to the Duties Act which imposes duty on the making of a statement that has the effect of acknowledging that identified property vested, or to be vested, in the person making the statement is already held, or to be held, in trust for a person or purpose mentioned in the statement.

The making of the statement is taken to be a declaration of trust over the dutiable property and accordingly is a dutiable transaction. The person making the statement will be liable, at the time the statement is made, to pay duty on the dutiable value of the property vested or to be vested in that person.

These amendments were made as a response to the decision in Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285. In that case, the Court held that a document which does not effect a transaction, but merely acknowledges an existing legal position, is not liable to duty under the Duties Act. The Amending Act overturns this decision and makes it clear that at least in the context of declarations of trust, duty remains an instruments tax.

Both surcharge purchaser duty (if applicable) and premium transfer duty (if applicable) can apply if the dutiable property is residential-related property, and ad valorem duty will be assessed and calculated as at the date of acknowledgement of trust.

The above changes will affect acknowledgements occurring on or after 19 May 2022.

The implication of this is that parties must now be extra careful when executing any document that may be construed as a dutiable transaction. Getting this wrong could be a costly mistake and could result in ad valorem duty on the value of the property.

Tax avoidance and penalties

Three main changes, as summarised below, are introduced to deter tax avoidance in the TAA.

  1. Modification of the tax avoidance scheme. Chapter 11A is now removed from the Duties Act and replaced with new anti-avoidance provisions in Part 10A of the TAA. These provisions cover schemes for the avoidance of all kinds of tax liability rather than only a liability to pay duty, and prohibits the promotion of tax avoidance schemes;.
  2. Increase in penalty tax. The penalty tax payable by significant global entities (within the meaning of the Income Tax Assessment Act 1997 (Cth)) is increased from 25% to 50% for any tax defaults.
  3. Introduction of new promoter penalties provisions. Under the new section 106N of the TAA, a person must not engage in conduct that results in a person being a promoter of a tax avoidance scheme. Any person engaged in marketing a scheme or otherwise encouraging the growth of such a scheme is classified as a promoter, not just those who receive consideration in respect of that marketing or encouragement. Civil penalties apply to promoters.

Australian based developer surcharge purchaser duty and land tax

This applies if you are an Australian based developer and have paid surcharge purchaser duty and land tax (as applicable).

In addition to your existing rights, you may now apply for a refund on surcharge purchaser duty and land tax (as applicable) if the residential land acquired has been used by you as the purchaser or your related body corporate, after settlement, wholly or predominantly for commercial or industrial purposes.

This also applies to exemptions of surcharge purchaser duty and land tax for future transactions.


These amendments reveal an extremely wide scope of implications on various land transactions that will undoubtedly be affected by all local and international individuals, corporate entities and trustees. Seeking timely advice is the safest way to ensure compliance and protect you from the unnecessary costs and penalties adopted under the Amending Act.

If you require any legal advice with a particular project or matter or have any concern about the implications of these amendments on your transaction, please contact Mike Ellis, Partner or Yanlie Leung, Senior Associate and we would be more than happy to assist you with your enquiry.

This publication is for introductory and general information purposes only and does not constitute legal or commercial advice and cannot be relied upon as legal or commercial advice. To the extent it relies on third party materials we do not warrant the accuracy of those materials but otherwise believe the article to be accurate as at the date of first publication. You should always seek legal advice regarding your particular circumstances.