A property settlement can be delayed for many reasons, such as finance issues, problems with the property or the buyer being unable to sell their existing home.
In Victoria, if the buyer is unable to settle on the settlement date, the seller can charge penalty interest. The exact amount will be specified in the contract of sale and is typically calculated on a day-to-day basis.
The Victorian State Revenue Office has now confirmed that stamp duty will be payable on penalty interest for contracts entered into on or after 1 July 2022 – with some interim exceptions.
Why is stamp duty payable on penalty interest?
This new duty is the result of a 2020 Victorian Supreme Court decision that confirmed late settlement interest is part of the consideration that ‘moves’ the transfer of the land. As a result, it forms part of the dutiable value of the land, so duty is payable.
What are the exceptions?
For the 12 months from 1 July 2022, the SRO has said it will require duty only if the penalty interest exceeds $5,000.
Keep in mind, this is an ‘interim measure’ and therefore could decrease or increase in the future.
During this interim period, late settlement interest will not form part of the dutiable value of the land for the purpose of determining eligibility for the:
- Principal place of residence concession
- First home buyer duty exemption, concession or reduction
- Off-the-plan concession
- Pensioner concession
- Young farmer exemption or concession
- First Home Owner Grant.
Freya Southwell is a property lawyer and principal of Sutton Laurence King Lawyers.
Need expert advice on property law in Victoria? Contact Sutton Laurence King Lawyers today on 03 9070 9810 or for help.