Property transfers between spouses and domestic partners – when is stamp duty payable?

It is not unusual for couples to re-consider the ownership of real property they own, whether as part of their estate planning arrangements or in considering the protection of their assets.

Before 1 July 2017, there was no stamp duty payable if any property was transferred between spouses or domestic partners.

After 1 July 2017, there was a change to the Duties Act 2000 (Vic) (“the Act“) which restricted the availability of stamp duty exemption to the transfer of the principal place of residence (being the ‘home’) between spouses or domestic partners, provided the transfer is a gift – meaning, the recipient does not pay to acquire it.

The Act did not change the availability of a stamp duty exemption for property transfers arising from the breakdown of a marriage or a domestic relationship.

Exemption Criteria

Following the changes to the Act, the current eligibility criteria for the duty exemption are:

1. the parties involved in the property transfer are spouses or domestic partners (including those in a registered domestic relationship or two persons who are living together as a couple on a genuine domestic basis); and
2. no person outside the relationship is entitled to take an interest in the property being transferred; and
3. the property is a residential property that at least one person in the relationship will live in for a continuous period of at least 12 months from the date of the transfer (“residency requirement“); and
4. the recipient of the property is not paying any consideration to receive the property (“no consideration requirement“).

Typically, proving eligibility under the first two criteria is quite straightforward. However, when it comes to the residency requirement and the no consideration requirement, there are some important issues to be aware of.

Residency Requirement

Not only must the property being transferred be the principal place of residence, it is a requirement for duty exemption that the property will remain the principal place of residence of at least one person in the relationship for the next year after the property transfer takes place.

There is a positive obligation on couples who use this duty exemption to ensure they advise the State Revenue Office (“SRO“) of any changes to their circumstances in this 12-month period, if they will not be using the property as their home for the full year.

Our experience is that the SRO is vigilant in determining whether a property being transferred is genuinely a principal place of residence and ensuring compliance with the ongoing residency obligation.

No Consideration Requirement

If the property being transferred is unencumbered, provided the recipient does not pay to receive the property, the no consideration criteria can be quite simple to satisfy.

Where there are loans secured against the home, the no consideration requirement comes sharply into focus.

If there is a mortgage on the property, and at the time of the transfer, the recipient gives a mortgage which either:

1. secures the same or a greater amount than the amount owing immediately before the transfer; or
2. assumes the liabilities under the existing mortgage;

then the no consideration requirement will be satisfied, provided the SRO is satisfied the couple has not entered into the transfer simply to access the duty exemption (meaning, there would need to be another reason for the transfer to take place). This typically covers a genuine refinance, or mortgages created at or before the time of the transfer, or those created to secure borrowings used for the improvement of the property.

A recent example where the SRO was not satisfied that the ‘no consideration requirement’ was met, is as follows:

1. the home was owned by one party to the relationship, who was also the sole borrower in relation to a number of loans secured against the home;
2. the intended property transfer would have resulted in the second party to the relationship becoming the sole owner of the home; and
3. in relation to the borrowings, it was intended the second party would become the sole borrower, with the first party remaining involved as guarantor.

In these circumstances, the SRO took the view that consideration had passed between the parties resulting in the transfer being dutiable.

Key takeaway

Transferring property between spouses or domestic partners is not as straightforward as it once was.

Before proceeding with a property transfer between spouses or domestic partners, there is value in seeking advice about whether or not, in the specific situation, the duty exemption criteria are satisfied. In some circumstances, requesting the SRO make a private ruling may provide comfort and certainty about the eligibility for this duty exemption.

How we can help

Please contact us for more detailed and tailored help.