In each contract of sale, there is a stipulated clause governing the settlement period. Now, any delays incurred in settlement may result in interest payable according present in the terms of the sale contracts – this is known as Late Settlement Interest.

Since June 2022, the Victorian State Revenue Office (SRO) noted that effective 1 July 2022, there will be an administrative approach to Late Settlement Interest payments, now forming part of the dutiable value on properties in Victoria. This means that duty must be paid by Property Purchasers and/or Developers on the property AND on the Late Settlement Interest paid to Vendors.

Why is Late Settlement Interest now payable?

Duty is payable on Late Settlement Interest due to the Late Settlement Interest being treated as ‘consideration’ which ‘moves’ a transfer of land along.

The SRO’s update comes from the 2021 Supreme Court decision of Commissioner of State Revenue v 1043 Melton Highway Pty Ltd [2020] VSC 820, in which default interest was deemed to form part of consideration for duty assessments where, when loan advances were not paid on time, a late fee moved the transfer of land forward.

What does this all mean for Purchasers and Developers?

Other payments relating to transfer of dutiable property, usually reimbursed, have not been addressed by the SRO. It is now queried what amounts constitute movement of transfer or whether they are appropriate divisions of cost.

Notably, the SRO has deemed that for 12 months from 1 July 2022, an administrative approach requiring duty on Late Settlement Interest will only be for amounts exceeding $5,000. This threshold is temporary and subject to change.

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 concessions, exemptions or grants – such as:
  • principal place of residence concession;
  • first home buyer duty exemption, concession or reduction;
  • off-the-plan concession;
  • pensioner concession;
  • young farmer exemption or concession; and
  • First Home Owner Grant.

When late settlement interest is payable, it should not be included in Duties Online. Settlement can proceed with original estimates. However, if late settlement interest is owed and payable, the SRO must be notified within thirty (30) days of settlement for reassessment of duty.

Regardless of whether you are selling or purchasing a property, it is critical that your contract of sale is drafted correctly and identifies relevant clauses, conditions and concerns.

That’s why if you have any questions concerning the above, please don’t hesitate and contact the Arro Property team today!