Transfer Duty refunds for cancelled property transactions in NSW

Acquiring property in New South Wales involves an obligation to pay transfer duty, historically known as stamp duty. Understanding the process and conditions under which transfer duty refunds apply if an agreement to sell property does not proceed to settlement is important for purchasers who should be aware of their rights and potential financial recourse.

Understanding Transfer Duty

In New South Wales, transfer duty is governed by the Duties Act 1997 (NSW) (the Act). This tax applies to a wide range of property transactions, as detailed in Section 8 of the Act, including the purchase of residential homes, investment properties, vacant land, commercial properties, and businesses involving land. Furthermore, transfer duty is also applicable when acquiring land or an interest in land through other means, such as declarations of trust, gifts, or changes in beneficial ownership. A concession or exemption may be available in certain circumstances, when a person is a first home buyer or a beneficiary of a deceased estate, or the transfer is between a married or de-facto couple. Criteria must be met before a concession or exemption will apply and we will discuss such criteria in a future article.

Cancellation of Agreements

Property sale agreements may be cancelled (e.g. rescinded or otherwise terminated without completion for numerous reasons, including financial constraints or changes in personal circumstances. According to Section 50 of the Act, an agreement for the sale or transfer of property that is cancelled may not be liable for transfer duty if the Chief Commissioner determines that:

• the cancellation did not facilitate a sub sale (where the original purchaser of a property enters into a subsequent agreement to sell the same property to another buyer before the original purchase transaction is completed);

• the purchaser or transferee was a promoter of a company to be incorporated, and this company is the purchaser under a subsequent agreement; or

• the purchaser or transferee in both the initial and subsequent agreements were related parties.

When one of these criteria are satisfied, the Chief Commissioner is obligated to reassess and refund the transfer duty.

Vendor-Initiated Novation

Occasionally, the vendor may initiate a novation, substituting the original buyer with a new one at the vendor's request. In these cases, the original purchaser's withdrawal is not treated as a sale from the original to the new purchaser. Instead, it is considered a type of cancelled agreement that is not liable for duty.

Cancelled Transfers

Under Section 50A of the Act, for property transfers documented by a written instrument, transfer duty is not applicable if the Chief Commissioner is satisfied that:

• the Transfer instrument has been cancelled (including being ‘abandoned’), and the property is not transferred; and

• the cancellation was not made to facilitate a sub sale.

If these conditions are met and transfer duty has already been paid, a refund application can be submitted to the Chief Commissioner within 5 years of the initial assessment.

Refund Process

For cancelled agreements, the transfer duty paid can be refunded subject to application. A purchaser must apply for a reassessment and refund within the later of:

• 5 years from the initial assessment; or

• 12 months after the agreement is rescinded or annulled, whichever is the later.

The application must include the following documents:

• the original Contract for Sale or Transfer;

• evidence that the agreement has been cancelled – e.g. a copy of the Deed of Rescission or Termination Notice (signed by both parties): and

• a copy of the original Purchaser Declaration.

Failure to provide the above documents will result in the application not being processed.

Key Takeaways

In New South Wales, understanding transfer duty and the conditions for transfer duty refunds is crucial for parties intending to acquire property. Transfer duty applies to various property transactions, but cancellations may exempt you from duty if the cancellation does not facilitate a sub sale, involve a company promoter, or involve related parties. Refund applications must be made within the specified timeframe and the required documentation must support the application.

For assistance with assessing whether you are eligible for a refund of transfer duty, please contact our people:

Ron Zucker 0410 590 111

Eollyn Cortes 0478 727 395

Sagang Chung 0431 435 333

Julia Zou 0426 670 202