Stamp duty (also called transfer duty) is a substantial cost component of a property purchase, and if there’s any exemption or concession whatsoever you’d want to know about it! A transfer involves removing parties from the property title Here are the most common scenarios that you can transfer property without paying stamp duty:
Transfers between married couples and de facto partners where the transfer is either the principal place of residence (the family home) or vacant land which is intended to be used as the site of the principal place of residence. Upon completion of the transfer of the residential property, both partners must hold the property equally (whether joint tenants or tenants in common). Note: If the family home is also used for other purposes, the exemption will only apply to the residential part of the home.
Marriage, de facto or domestic relationship break-ups Section 68(1) of the Duties Act 1997 (NSW) specifies that where a break-up of marriage or de facto relationship occurs the title transfer can occur with transfer duty exemptions between either of the parties of the domestic relationship breaks, or a child or children of either of the parties. This must be effected by court order under the Family Law Act, or in accordance with a binding financial agreement made under sections 90B, 90C, 90D, 90UB, 90UC or 90UD of the Family Law Act 1975.
Foreign transferees who are eligible for an exemption, still have to pay the surcharge purchase duty currently set to 8% of the property value they receive.
Deceased estate transfers to a beneficiary in accordance with the terms of the will or under the rules of intestacy are entitled to a concessional rate of $50. If a will is contested, the duty chargeable will be determined based on any court orders made. Where a transfer does not confirm to a will, transfer duty will be payable. Example, if the beneficiaries agree to become owners on different properties, then they will need to pay transfer duty on the ownership proportions they now hold, that were not originally gifted in the will.
Do I have to pay Stamp Duty?
Where there is no stamp duty exemption or concession met under the Duties Act 1997 (NSW) and as noted above, you will be required to pay stamp duty and the vendor may need to pay capital gains tax. In NSW, stamp duty is based on the property’s contract price (or sales price) or the market value of the property, whichever is higher; and not the contract price. If the buyer and seller are related or associated, or you’re not transferring the whole property, the property you must obtain an independent valuation by a suitably qualified property valuer. They will look into a number of factors such as the property’s market, recent sales, originally purchased price, zoning, restrictions on the property, and renovations or any property upgrades to determine the valuation price for nominal transfer duty. Transfer duty will then be payable on the new portion of the property title now attributed to you. As part of the property transfer, our solicitors will lodge an application for assessment on the contract for sale or transfer of land on your behalf, and arrange for paying transfer duty as part of the property title settlement process.
Gifting Property or Selling property
Whilst you may be generous gifting property or selling property at below market value to a family member or significant relationship, the tax man isn’t so gifting. Whether it is an investment property or the family home, transfer ownership will attract stamp duty if it does not fall in the stamp duty exemption categories:
For relationship breakdowns there would need to be a certified domestic partnership agreement, binding financial agreement or court order;
Deceased estate where the beneficiary is specified on the will and/or under the general rules of intestacy stamp duty exemptions may apply.
Transferring family home within a marriage significant relationship or de facto partners.
Foreign transferees who would need to pay the surcharge purchase duty currently set to 8% on the property’s independent valuation or market value.
What is a related party?
Related parties can be defined as spouses, family members or people in a business or personal relationship. Such transactions are not considered “arms length”, and the parties have a pre-existing relationship and often benefit from the nature of the transaction differently to an “arms length” transaction, such as receiving a property at a below market value price or gift. Related party transfers include adding a spouse on title, change of ownership between related parties for refinancing, court orders and/or property settlements such as divorce or de facto partners separations, transfers between family members as a gift or below market value, transfer to deceased estates to the beneficiary, and transfers between a trust or company to a person for tax purposes.
Property transfer to family members or related parties
Generally speaking, transferring property between family members or related parties attracts transfer duty, however some property transfers may qualify for a stamp duty exemption or concession. If you paid transfer duty, but realise you were entitled to an exemption or concession you can actually lodge a claim for a refund within 5 years.
There are 3 main questions you need to ask before transferring property between family members or related parties:
Will the property transfer be by gift, sale, or holding change?
Understand the costs involved including: What are the Title Office costs and stamp duty fees involved?
Are there any capital gains tax implications for the vendor?
Transfer of property from trustee to beneficiary and asset protection
Depending on your personal circumstances, having an asset protection strategy in place that involves a family trust, fixed trust or unit trust can be pivotal in protecting your investment properties and estate, as well as potentially access a transfer duty exemption or concession when transferring to beneficiaries. The Duties Act 2000, Section 36 of the Duties Act 2000 – transfer of property to beneficiary of a fixed trust, Section 36A of the Duties Act 2000 – transfer of property to a beneficiary of a discretionary trust and Section 36B of the Duties Act 2000 – transfer of property to a beneficiary of a unit trust have the following general requirements:
Duty (if any) must have been paid when the property first become subject to the trust.
The transferee must have been a beneficiary of the trust when the property was acquired and became an asset of the trust (i.e. the relevant time).
There must be no consideration for the transfer and the transfer of property from trustee to beneficiary must not be part of a sale or other arrangement.
The exemption is available for property that has been subdivided or consolidation. Property derived from a subdivision or consolidation of titles forms part of the same dutiable property which first become subject to the trust.
Fixed and unit trusts
For fixed trusts and unit trusts a complete stamp duty exemption can apply where:
the dutiable value of the property not more than the value of the beneficiary’s or unit-holder’s interest in the trust (the exemption applies on a proportionate basis), and;
the property distribution reduces the beneficiary’s or unit-holder’s interest in the trust.
Discretionary trusts (Family Trusts)
For discretionary trusts the stamp duty exemption applies equally to all subject beneficiaries and the distribution to a particular beneficiary does not extinguish or reduce the beneficiary’s interest in the trust. Therefore, duty exemptions will apply where the subject beneficiary must have been a beneficiary at the relevant time or must have become a beneficiary after the relevant time by reason of:
Becoming a spouse or domestic partner of a beneficiary; or
Becoming an adopted child or step child, or being a lineal descendant of, a beneficiary; or
Becoming an adopted child or step child, or being a lineal descendant of a spouse or domestic partner of a beneficiary.
This stamp duty exemption will not override the requirement of the trust deed permitting the trustee to exercise its discretion to distribute the property to the subject beneficiary and the trustee must remain in compliance with the particulars of the trust deed. Capital gains tax and family trust distributions tax obligations also need to be taken into consideration. Independent financial advice on the holistic tax implications of the title transfers by a registered tax agent is critical.
The above article is intended for transferring property in NSW. Though the same process may apply in other states, the information is not intended for other property transfers under NT government, Queensland government, Victorian Government etc