Stamp duty is a tax that’s imposed on transactions of property and the purchase of assets. So, when is stamp duty payable and when is it not? Stamp duty on new leases was abolished in New South Wales in 2008. However, there are still circumstances where a tenant, must pay stamp duty under a commercial or retail lease. Those include:-

Managing a lease when purchasing a business

Creation of lease

You must pay stamp duty on a new lease only when you pay the landlord a lump sum payment to encourage him/her to grant the lease.

An example is where you enter into a lease after the landlord/landlady agrees to grant an option for an agreed amount or he/she requires a premium payment.

The landlord/landlady usually sets this amount which you may negotiate. However, an amount payable upfront will be a capital payment on which stamp duty is payable.

Retail leases

For retail leases, key money payments (including premium payments) are not permitted. If you are a retail tenant, it’s unlikely that you will have to pay stamp duty on the registration of a retail lease.  

Premium payment v up-front rent

There is a difference between premium payments and rent up-front or in lump sum instalments.

The payment must be considered a capital payment. In general, if you pay a sum simply to gain access to the right to lease (rather than to gain the use of the premises) it is likely to be considered a premium. Payments made for the use of the premises will be viewed as ordinary rent on which no duty is payable.

Exempt leases

Some leases are exempt from stamp duty even if a premium is payable. These include leases:

1. of units in a retirement village;
2. for approved nursing homes; or
3. of premises to the Home Care Service of NSW

Transfer of lease

You must pay stamp duty on the transfer or assignment of a lease. The amount will depend on whether you are paying any money specifically for the transfer.

Even if you are not paying any money for the transfer, you must still pay Revenue NSW a nominal amount (currently $10) each time you transfer your lease. Land Registry Services is unlikely to accept a transfer without the nominal stamp duty, which will delay the assignment.

As the assignment or transfer of a lease often occurs in conjunction with the sale of a business, other dutiable amounts may also be payable.

For example, if the sale of business includes a transfer of lease and goods, then the following nominal stamp duty amounts will be payable:

1. $10 on the Sale of Business Agreement;
2. $10 for the duplicate Sale of Business Agreement; and
3. $10 for the Transfer of Lease.

You must pay at least $30 if the transfer of the lease occurs as part of the sale of the business.

Surrender of lease

The surrender of a lease (where you voluntarily give up the lease to the landlord before your lease term has expired) is also subject to stamp duty.

The amount of duty will also depend on the circumstances of the surrender. If the landlord requires you to surrender the premises and pays you an amount as compensation, then this amount is subject to duty.

On the other hand, if you voluntarily surrender the lease, then you must pay a nominal $10 assessment duty.

Takeaways

Stamp duty is generally not payable on the registration of a lease unless key money or a premium has been paid. Stamp duty is not payable on the registration of a retail lease. You will have to pay a nominal $10 for a transfer or voluntary surrender of a lease if no other money is being paid.

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Contact us now if you have any questions about when to pay stamp duty on your lease.