Nomination Risk and Double Duty in Property Transactions
When purchasing property in Victoria, many buyers rely on a nomination clause in a contract of sale to transfer their interest to another person or entity before settlement. While this is a common strategy, it can carry significant tax risks if not handled correctly. In particular, poor timing or misunderstanding of the law can lead to nomination risk and double duty, resulting in unexpected stamp duty liabilities.
This article explains how these risks arise, what the law says, and how careful legal advice can help you avoid costly mistakes.
What is nomination risk in property transactions?
A nomination occurs when a purchaser under a land contract transfers their rights to another party using a nomination document or nomination form. This is often used where a buyer initially signs a contract in their own name but later nominates a company, trust, or related party to complete the purchase.
While this may seem like a simple administrative step, it can trigger a dutiable transaction under the Duties Act 2000 (Vic). The State Revenue Office closely examines these arrangements, particularly where there are changes in ownership, additional consideration, or development activity before nomination.
If not structured correctly, the result can be multiple assessments of land transfer duty, commonly referred to as “double duty”.
How does double duty arise?
Double duty typically arises when there are two taxable events involving the same dutiable property. As outlined in the guidance material, this often occurs where:
- A purchaser enters into a contract of sale
- The purchaser later nominates another party
- Certain actions occur before nomination, such as land development activities or providing additional consideration.
Under the Duties Act 2000, duty can be assessed on both the original contract and the subsequent nomination arrangement.
This means the buyer may effectively pay duty twice, significantly increasing the cost of the transaction. These outcomes are often unexpected and arise from misunderstandings of property law, tax rules and transaction timing.
What counts as land development?
One of the key triggers for double duty is “land development”. The definition is broad and includes activities that enhance the value of land.
Examples include:
- Applying for a planning permit under the Planning and Environment Act 1987
- Applying for a building permit under the Building Act 1993
- Lodging or registering a subdivision under the Subdivision Act 1988
- Requesting changes to a planning scheme
- Commencing building works or other improvements.
Importantly, even lodging an application may be sufficient to trigger duty consequences. The State Revenue Office, guided by revenue ruling DA-064v2, takes a wide view of what constitutes development.
The role of nomination clauses and timing
A properly drafted nomination clause is essential, but it is not enough on its own to avoid risk. Timing is critical.
Problems often arise where:
- A purchaser signs a contract in their own name
- Takes steps toward development or improvement
- Later attempts to transfer the interest via a nomination form.
In these circumstances, the transaction may be treated as a second dutiable transaction, triggering additional state property taxes.
Other risks arise where:
- Additional money or “consideration” is paid by the nominee
- The nomination does not comply with contractual requirements
- The transfer of title occurs after development activity.
Even technical issues under provisions such as Section 32J can affect the outcome.
Practical risks for buyers and developers
Nomination risk is particularly relevant for:
- Property investors using trusts or companies
- Developers undertaking early land development activities
- Buyers intending to restructure ownership before settlement.
Without proper advice, buyers may face:
- Unexpected duty claim assessments
- Delays in land transfer and settlement
- Increased tax liability on commercial property transactions
- Compliance issues with both the Duties Act 2000 and Duties Act 1997 (NSW, where interstate elements apply).
These risks can significantly affect project feasibility and overall investment returns.
How to reduce nomination risk
To minimise the risk of double duty, it is important to:
- Decide the correct purchasing entity before signing the contract of sale
- Avoid undertaking development or improvement before nomination
- Ensure any nomination document complies with contractual and legal requirements
- Seek legal advice before completing any lease agreement, subdivision, or development step
- Understand how the State Revenue Office applies duty to your specific transaction.
Early advice is critical. Once steps such as applying for a planning permit or building permit have been taken, the ability to avoid double duty may be limited.
How Velos & Velos Lawyers can help
At Velos & Velos Lawyers, we provide strategic advice on property transactions, nominations and commercial leasing arrangements. Our team understands the interaction between property law, taxation rules and dutiable transactions, and we work closely with clients to structure transactions correctly from the outset.
We can assist with:
- Reviewing and drafting nomination clauses
- Advising on contract of sale risks
- Managing land transfer duty obligations
- Liaising with the State Revenue Office
- Structuring transactions to minimise exposure to double duty.
If you are purchasing property, considering a nomination, or involved in development, it is essential to obtain advice before taking any steps.
Call Velos & Velos Lawyers today on 03 8379 1000 or use our Contact form to get in touch and ensure your property transaction is structured correctly from the start.
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