: ACT land and building contracts assessment of duty

ACT land and building contracts assessment of duty

Roberta McRae
ACT

On 1 August 2014, the Property Law Committee of the ACT Law Society alerted practitioners to a communication from the ACT Revenue Office (‘ARO’) about the treatment of land and building contracts and the assessment of duty. Specifically they said: ‘where the purchaser buys land in one contract and in a separate contract arranges for a house to be built on the land, duty is payable on the land only’.

This affirmation of policy by the ARO is the product of a four-year saga. It began when Mr Araghi and Mr Dorsett signed two contracts on 9 April 2009. One was with the Land Development Authority to purchase land in Crace and the other with Crace Development to build a house on the land.

Araghi and Dorsett believed that they would only have to pay stamp duty on the land, not the land and house combined. When the Commissioner for Revenue made an assessment of the duty payable, they were required to pay duty on both.

They appealed to ACAT in 2010 which ruled in their favour. The Commissioner for Revenue appealed to the Supreme Court where, in March 2013, a single judge found in favour of Araghi and Dorsett and, in a subsequent appeal, three Supreme Court judges upheld the finding that duty was only to be paid on the land, not the house and land.

The Commissioner’s essential arguments were that the two contracts were closely intertwined and effectively the land could only be transferred once the house was built so that the purchasers would receive the benefits of the improvements when they completed their purchase.

But the contract for the land was with one agency and the one for the land with another. The building did indeed need to be finished for the land to be transferred but there was no privity of contract between the Land Authority and the builder so, in essence, the transfer of land could be completed by the Land Authority but they did not control the building process, nor did the conclusion of the building actually affect the transfer of land.

The definitions in the Duties Act did not include this type of land and housing package so duty simply could not be charged on the house built on the land The ACAT ruling and the Court’s findings are a salutary reminder of the first principles of contract law and the importance of legal drafting.

ROBERTA McRAE teaches law at the ANU College of Law.

(2014) 39(3) AltLJ 196
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