If you are a new purchaser or a seasoned purchaser – you need to be aware that the State Revenue Office (SRO) can now impose duty on late settlement fees and penalty interest imposed by a Contract of Sale if you cannot settle on time.
On 14 June 2022, the SRO announced that from 1 July 2022, stamp duty will apply to penalty interest and/or any late settlement fees.
This has the potential to cause difficulties and financial strain for purchasers who are already in default under a Contract of Sale due to financial reasons as it requires them to:
1. not only source further funds to complete the Contract; but now also
2. source funds to the increase in stamp duty because of their default.
Confused? Why is this change happening?
The 2020 case of Commissioner of State Revenue v 1043 Melton Highway Pty Ltd, has confirmed the position that any penalty interest or late settlement fees is considered as part of the “consideration” (aka the purchase price) which is applicable to the transfer of the land.
When will this start?
The SRO has announced that for 12 months from 1 July 2022, a minimum amount of $5,000 for late settlement penalties and fees will need to be incurred to trigger the requirement for payment of the duty.
Therefore, a conveyancing transaction should be lodged for reassessment if:
1. the Contract of Sale/transaction or arrangement was entered on or after 1 July 2022;
2. the late settlement interest applicable to the transaction is $5,000 or more.
For the first 12 months (until 30 June 2023) any penalty fees that are lower than $5,000 will not need to be re-lodged for assessment.
Recommendations for now
As always, we recommend obtaining finance approval or pre-approval prior to making an offer or bidding at auction.
Now more than ever, this is a good risk prevention method to ensure that, as a purchaser, you will not be in the unenviable position of a financial default under a Contract of Sale and needing to calculate the additional stamp duty payable on top of penalty interest and late settlement fees.
For further information, please see link to the SRO announcement here:
If you are a purchaser or someone you know wants more information or needs help or advice regarding purchasing a property, please contact us on (03) 9592 3356 or email email@example.com to make a time to have a consultation with one of our property lawyers.