Options

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.

Your liability for duty arises when the transfer /assignment 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.

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

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.

Example 1:

1. The grantee pays an option fee of $20,000 and obtains an option to purchase land from ABC Pty Ltd (the grantor) for $2,000,000.00.

Duty liability:

Duty is payable on the option fee of $20,000 that was paid to the grantor. A grant of an option is a change in beneficial ownership under section 8(1)(b)(ix) of the Duties Act 1997.

Example 2:

2. The grantee then transfers the call option to the purchaser (or nominates a nominee 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 under Chapter 2:

   Duty on $500,000 is payable by the purchaser/nominee within three (3) months of the liability date (being the date the transfer/assignment or nomination is made).

   Applying the general rate as at March 2021

   Ad valorem duty on $500,000 = $17,835 (refer to section 9B)

   The executed Deed of Assignment / Deed of Nomination or Nomination Notice (when the transfer or nomination was made) is the instrument liable to ad valorem duty.

3. Purchaser B then exercises the call option.

Duty liability under Chapter 2:

Duty is payable on the land transfer ($2,500,000 – the purchase price of $2,000,000 plus the nomination/novation/transfer fee of $500,000) by Purchaser B within three (3) months of the option exercise date. The amount of ad valorem duty at the general rate is to be reduced by the amount of duty paid by Purchaser B on the earlier nomination.

The executed Exercise Notice is the instrument liable to ad valorem transfer duty.

Applying the general rate as at March 2021

Ad valorem duty on $2,500,000 = $122,505

$122,505 - $17,835 (section 64D credit) = $104,670

The section 64D credit would only apply if the option is exercised validly in accordance with the option deed. The section 64D credit is only in respect of the duty paid at the general rate for the nomination/novation/transfer of the option.

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.

Example 1

The grantor grants the grantee a call option that confers a right on the grantee (or any assignee/nominee of the grantee) to require the grantor to sell the land. The grantee also grants to the grantor a put option that confers on the grantor a right to require the grantee (or any assignee/nominee of the grantee) to purchase the land from the grantor.

Duty is payable on any call option fee that was paid for the grant of the option. A grant of an option is a change in beneficial ownership under Section 8(1)(b)(ix) of the Duties Act 1997.

The grantee then transfers / assigns the call option to a nominee/assignee. Ad valorem duty is payable as follows:

1. The grantee/nominator (as the option holder) must pay call option assignment duty on the dutiable value of the transfer of the land (refer to section 109).
2. The nominee (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.

If a nominee/C then transfers the option to anther nominee/D. Nominee/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 nominee/C will receive a credit for the duty paid by nominee/C on the transfer of the option to nominee/C. Nominee/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 the grantee. The grantee pays a call option fee of $50,000 and obtains the right to purchase commercial land from ABC Pty Ltd for $5,000,000.00.

   Duty liability:

   Duty is payable on the call option fee of $50,000. A grant of an option is a change in beneficial ownership under section 8(1)(b)(ix) of the Duties Act 1997.

2. The grantee/nominator then transfers/assigns the call option to the nominee and receives a nomination fee of $900,000.

   Duty liability under Chapter 3:

   Call option assignment duty is payable by A on the transfer/assignment of the option to B. Ad valorem transfer duty is calculated on the dutiable value of the land. If the unencumbered value of the land does not exceed $5,900,000 as at the transfer/assignment date, ad valorem transfer duty is payable on this amount.

   Applying the general rate as at February 2022

   Ad valorem duty on $5,900,000 = $309,375

   Ad valorem duty is also payable by the nominator on the transfer of the option to the nominee. Ad valorem duty is payable on the dutiable value of the option.

   Ad valorem duty on $900,000 = $35,835 (refer to section 9B and Chapter 3)

3. The nominee/purchaser then exercised the call option.

Duty liability:

Ad valorem duty is payable on the land transfer ($5,900,000 – the purchase price plus the nomination fee – refer to section 22(4)) by the nominee/purchaser within three 3 months of the option exercise date. The nominee/transferee will receive a credit for the duty paid by the nominee/transferee on the earlier transfer of the option (refer to section 64D). If the transferee is not the same as the nominee the section 64D credit will not apply to the duty payable on the exercise of the option.

Ad valorem duty on $5,900,000 = $309,505

$309,505 - $35,835 (section 64D credit) = $273,670

The exemptions from call option assignment duty are contained within section 111 of the Duties Act.

Section 111(1)(c) – Builder’s exemption

If the Grantee who then becomes the Assignor/Nominator is a licenced home builder, consider if the builder’s exemption under section 111(1)(c) applies to determine if the call option assignment is exempt from call option assignment duty.

If the call option is assigned by a person authorised to contract to do residential building work under the Home Building Act 1989 (NSW) who has built or is building residential premises on the land for the purposes of sale, or has an agreement with the person to whom the call option is assigned to build residential premises on the land, consider if the builders exemption under section 111(1)(c) applies.

Section 111(1)(d) – Members of a ‘group of corporations’

If the call option is transferred/assigned by a corporation that is a member of group of corporations to another corporation that is a member of the same group, consider the exemption under section 111(1)(d).

When requesting this duty exemption, please also refer to sections 111(2A) and 111(2B).  Note that the test for members of the same ‘corporate group’ under Chapter 3 is different to the definition under Chapter 11 (section 273E) of the Duties Act. Chapter 3 does not define a corporation to include a unit trust scheme.