Transfer of options to purchase land

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

  • nominates another person to exercise the option; or
  • nominates another person as purchaser or transferee of the land the subject of the option on or before the exercise of the option; or
  • 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.

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 occurs. Where there is a nomination or novation, the liability date is:

  • in the case of a nomination – when the nomination is made; or
  • 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 3 months after the liability arises.

How is duty calculated?

Duty is calculated on the dutiable value of the option being transferred, 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 a grant, transfer, exercise or otherwise).

The duty payable on the transfer of the land will, however, be reduced by the amount of duty (if any) paid by the transferee on the transfer of the option.

Example

  1. Purchaser A pays an option fee of $20,000 and obtains an option to purchase land from ABC Pty Ltd for $2,000,000.

    Duty liability:
    No duty is payable on the grant of the option to Purchaser A.

  2. Purchaser A then transfers the call option to Purchaser B (or nominates B as the person who can exercise the option) and receives a nomination/transfer fee of $500,000 (which is equal to the unencumbered value of the option).

    Duty liability:
    Duty on $500,000 is payable by Purchaser B within 3 months of the liability date (being the date the transfer or nomination is made).

    Duty on $500,000 = $17,990

  3. Purchaser B then exercises the call option.

    Duty liability:
    Duty is payable on the land transfer ($2,500,000 - the purchase price plus the nomination/transfer fee) by Purchaser B within 3 months of the option exercise date. The amount of duty is to be reduced by the amount of duty paid by Purchaser B on the earlier nomination.

    Duty on $2,500,000 = $122,990
    $122,990 - $17,990 = $105,000

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.

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, A will be liable to duty on the dutiable value of the dutiable property.

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. The duty payable by A will be reduced by the amount of duty (if any) paid by A when the interest under the call option was acquired.

Example 1

A grants B a call option that confers a right on B (or any assignee of B) to require A to sell land. B also grants A a put option that confers on A a right to require B (or any assignee of B) to purchase the land from A. No duty is payable at this point.

B then transfers the call option to C. Duty is payable as follows:

  1. B (as the option holder) must pay call option assignment duty as if the transfer of the option were a transfer of the land. Duty is payable on the dutiable value of the land,
  2. C (as the transferee of the option) must pay duty on the transfer of the option. Duty is payable on the dutiable value of the option being transferred.

C then transfers the option to D. C (as the option holder) is required to pay call option assignment duty as if the option were a transfer of the land. However, in this case C will receive a credit for the duty paid by C on the transfer of the option to C. D (as the transferee of the option) is required to pay duty on the transfer.

Example 2

  1. ABC Pty Ltd enters into a put and call option with A. A pays a call option fee of $50,000 and obtains the right to purchase commercial land from ABC Pty Ltd for $5,000,000.

    Duty liability:
    No duty is payable on the grant of the put and call option.

  2. A then transfers the call option to B and receives a nomination fee of $900,000.

    Duty liability:
    Option assignment duty is payable by A on the transfer of the option to B. Duty is calculated on the dutiable value of the land. If the unencumbered value of the land does not exceed $5,000,000 as at the assignment date, duty is payable on this amount.
    Duty on $5,000,000 = $260,490

    Duty is also payable by B on the transfer of the option to B. Duty is payable on the dutiable value of the option.

    Duty on $900,000 = $35,990

  3. B then exercises the call option.

    Duty liability:
    Duty is payable on the land transfer ($5,900,000 – the purchase price plus the nomination fee) by B within 3 months of the option exercise date. B will receive a credit for the duty paid by B on the earlier transfer of the option.

    Duty on $5,900,000 = $309,990
    $309,990 - $35,990 = $274,000
Last updated: 11 November 2016