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Partitions and Stamp Duty A PAPER BY PAUL ANDERSON NOVEMBER 2007


Partitions and Stamp Duty by Paul Anderson

Partitions and Stamp Duty

Summary Following the recent Supreme Court decision of Aoun Investments Pty Limited v Chief Commissioner of State Revenue, the Commissioner has issued revenue ruling DUT35 to replace revenue ruling SD178.

Who Does This Impact? Property developers

What Action Should Be Taken? Careful consideration should be given to the stamp duty implications before a partition of real estate.

Contents:

1

2

Introduction

2

Legislation

2

Example

2

Supreme Court Decision

3

Decision

3

Ruling

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Conclusion

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Partitions and Stamp Duty by Paul Anderson

Introduction Following the recent Supreme Court decision of Aoun Investments Pty Limited v Chief Commissioner of State Revenue, the Commissioner has issued revenue ruling DUT35 on this subject to replace revenue ruling SD178.

Legislation Under Section 30 of the Duties Act 1997 nominal duty only may be payable upon a “partition of land”. A “partition” is defined in subjection 1 as follows: “What is a partition? For the purposes of this section, a partition occurs when property (some or all of which is dutiable property) that is held by persons jointly (as joint tenants or tenants in common) and beneficially is transferred or agreed to be transferred to one or more of those persons.”

Example A simple example might be if A and B jointly own lots 1,2, 3 and 4 in a strata plan. They decide to partition the lots so that A takes lots 1 and 2 and B takes lots 3 and 4. If the lots are equal in value, then only $10.00 stamp duty is payable rather than ad valorem stamp duty calculated on the value of the units. However, if lot 4 is worth more that the other lots because it is the penthouse and B pays to A the sum of $50,000.00 by way of an adjustment, then ad valorem stamp duty is payable by B but only on the sum of $50,000.00.

Supreme Court Decision Aoun Investments Pty Limited (“Investments”) owned lot 27 in a deposited plan and the adjoining lot 28 was owned by Boutros Aoun (“Boutros”). Under a deed executed by the parties, it was agreed that the 2 lots would be developed for home units under a strata plan creating 12 lots. It was further agreed that once the strata plan was registered the lots would be partitioned between the parties so that Investments received lots 1 to 6 and Boutros lots 7 to 12. A condition of development consent granted by the relevant Council was that the 2 lots (27 and 28) be consolidated. As a result, lot 24 in a new deposited plan was created. Ownership of lot 24 was described as “Investments as to the part formerly in lot 27 and Boutros as to the part formerly in lot 28” 28”. This was in line with the standard procedure of the Registrar General. Following registration of the strata plan, ownership of each of the 12 lots was described in the same terms, i.e. “Investments as to the part formerly in lot 27 and Boutros as to the part formerly in lot 28”. Again, this was in line with standard practice of the Registrar General. Boutros then executed a Transfer in favour of Investments of the parts of lots 1 to 6 in the strata plan formerly in lot 28 and Investments executed a Transfer in favour of Boutros of those parts of lots 7 to 12 formerly in lot 27. Investments and Boutros claimed that each Transfer was only liable for nominal duty because the transaction was a partition within the meaning of Section 30 and the lots were of equal value. The Commissioner disagreed.

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Partitions and Stamp Duty by Paul Anderson

Decision Gzell J of the Supreme Court determined that the phrase “held by persons jointly” in Section 30 connoted some form of co-ownership of the property, i.e. ownership as joint tenants or tenants in common in the technical sense. It did not include the situation in which two or more persons were owners of particular parts of the property even though those parts were included in a single Certificate of Title. That situation was more correctly described as ownership in severalty. Enjoyment of the whole of the land lay neither in Investments nor Boutros. They had distinct rights which were not rights of coownership. The result was that there was no partition within the meaning of Section 30 and the Transfers were liable for ad valorem stamp duty based upon the value of the interest transferred.

Ruling The Commissioner subsequently issued DUT35 to replace ruling SDI78. Important points made in the ruling are as follows: •

Section 30 is confined to land in New South Wales. Land not in New South Wales is to be disregarded when calculating stamp duty.

Section 30 is not restricted to partitions involving one parcel of land or adjoining parcels of land. It also applies to land held by partners in a partnership.

Section 30 only applies to land in New South Wales that is held jointly either as joint tenants or tenants in common. “Land held in the form of a dual entitlement is not held jointly because the ownership is in severalty.”

The ruling confirms the decision on Aoun, namely that transfers between proprietors of a dual entitlement will be liable for ad valorem stamp duty.

The ruling also confirms existing arrangements for assessment of stamp duty on partitions of land jointly held as summarised in the example given above. Duty is calculated on the dutiable value of a partition which is the greater of: a. The sum of the amounts by which the unencumbered value of the dutiable property transferred, or agreed to be transferred, to a person by the partition exceeds the unencumbered value of the interest held by that person in the dutiable property immediately before the partition; and b. The sum of any consideration for the partition paid by any of the parties.

If the unencumbered value of the undivided share of each partitioner in all the land being partitioned is equal to the unencumbered value of the divided part taken by that person, the partition is “equal”. The total excess value will therefore be nil (and there is unlikely to be any consideration paid). In such a case, the dutiable value will be nil and the partition will be chargeable with a minimum duty of $10.00 under Section 30 (4).

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Partitions and Stamp Duty by Paul Anderson

Conclusion The Supreme Court decision and the subsequent ruling have clariďŹ ed the manner of operation of Section 30. The lesson for developers is to be sure that Section 30 applies before taking any action. If in doubt about the operation of Section 30, further consideration should be given to whether a partition is really necessary and whether the desired result can be achieved by other means rather than the risk of a signiďŹ cant liability for stamp duty.

For more information, please contact:

Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au

Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Business & Property | Commercial Disputes | Insurance & Financial Services | Workers Compensation | Workplace Relations

www.turkslegal.com.au

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Partitions and Stamp Duty