From 1 July 2022, the State Revenue Office (SRO) advised that if settlement is delayed by the purchaser, then the penalty interest payable by the purchaser in accordance with the terms of the contract of sale will form part of the dutiable value of the property. The penalty interest calculated in this situation is known as “Late Settlement Interest”. As a result, purchasers will pay duty on the dutiable value of the property and the Late Settlement Interest.
The change in the administrative process is a result of the Victorian Supreme Court’s 2021 decision in Commissioner of State Revenue v 1043 Melton Highway Pty Ltd  VSC 820 (Melton Highway). In this case, the Court determined that default interest was part of the duty assessment consideration.
This new administrative approach is an interim position, which applies for 12 months from 1 July 2022 and only applies if the Late Settlement Interest is more than $5,000. Where this requirement applies, the transaction must be re-lodged for reassessment if:
- the contract of sale or arrangement was entered on or after 1 July 2022; and
- the Late Settlement Interest is $5,000 or more.
Where Late Settlement Interest is payable, the amount is not to be included in the SRO Duties Online Form. The settlement should proceed with the original estimate based on the dutiable value of the property. A reassessment of duty must occur within 30 days of settlement.
For the avoidance of doubt, Late Settlement Interest will not form part of the dutiable value of the land in 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; or
- first homeowner grant.
When entering into agreements to defer settlement, purchasers must be aware of the implications of any default interest they agree to pay to the vendor, especially if that penalty interest will exceed $5,000.
If you have any questions or require assistance in re-lodging a duty assessment, please contact us on 5303 0281 or at firstname.lastname@example.org.
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