Partition

Hi Everyone,

This is my first post here but I have been watching the posts of partition for more than one year.

I bought a house with my friend in tenant in common last year. I have just got a DA approval of subdivision into 2 lots from the council and I will lodge a subdivision plan with NSW Land Registry Services (LRS).

My solicitor has prepared a deed of partition for stamp duty for.

My questions are:
1. When do we sign the deed of partition? Before lodgement with NSW LRS or after we get two separate titles?
2. If there is any CGT for it? We will demolish the house and then subdivision. We will not build two houses until the subdivision? Do I need to do valuation?
3. Are we entitled for the exemption of stamp duty for year 2020 as we are intended to build the main residences? Both of us do not live in this house and we do not own any other main residences (two different families are renting at the moment). I checked the NSW revenue ruling and I think if one person own this land, it is entitled for the exemption but our case is two different families. I called NSW revenue and they need 10 weeks to get back to me for this.


Any input is highly appreciated.

Cheers,
Chris

 

You should be asking your lawyer for the legal advice.

The ideal time to sign would be at purchase. No point in partitioning after separate titles as you would then own half of each block. Partitioning is a dutiable transaction.
I think you will trigger CGT
sounds like you already own the property so duty would have been charged at purchase. You will need to get your lawyer to look at the duties act and advise if you would have qualified and then ask for a refund. Or are you talking about the second lot of duty on the partition? Without checking I don't think you would qualify.

Seek legal advice.

 

Hi Terry,

Thank you very much for your reply. I have been seeking advice from my solicitor and my accountant but it is in a mess now since my accountant and my solicitor have different understanding.

Yes, I paid the stamp duty for the purchase of the mother land.

Now, I just want to avoid paying another stamp duty for the subdivision into 2 lots and each person owning individual lot. This process involves partition and subdivision. I would like to use partition deed to avoid it. Could you please advise if I can?

Thank you.

Cheers,
Chris

 

There is no way you can avoid duty as partitioning is a dutiable transaction.

How much it will be is clearly set out in s30(3):
(3) Dutiable value The dutiable value of a partition 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 the person in the dutiable property transferred, or agreed to be transferred, to each person by the partition immediately before the partition, and
(b) the sum of any consideration for the partition paid by any of the parties.

 

Actually there is a way to avoid it, and that is to argue a trust

 

The partition issue is a legal issue. The lawyer should be asked to explain the DOP regarding legal AND tax consequences since they should have been considering the tax issues is part of the legal advice anyway. Solicitors are qualified to advise on tax and its not something for them to ignore.. I have concerns you are referring to a DOP that wasnt made at the time of acquisition as you keep referring to the present but also mention the past acquisition. That could be a CGT concern.

A DOP is dutiable as Terry says - A exchange of rights inwards and outwards. ie Duty may be 50% each to each new owner.

If it had been done at the outset there may have been a trust evident. And thats not dutiable.

 

Its a long short but a trust could potentially be argued even if no paperwork.

 

Sorry Terry, I think I did not give you enough information.

I bought this mother land in tenant in common with friend (47/53).

After subdivision, lot 1 will have 47% and lot 2 will have 53%.

I want to use partition deed to make me to own lot 1 and my friend to own lot 2.

My solicitor advised me I do not need to pay stamp duty for this if I had a deed.

But anyway, I am too confused now.

 

Hi Paul,

thank you for your reply.

Basically, I watched this forum and saw some posts by Terry for partition. So I talked to my solicitor regarding the partition and subdivision before I purchased the land. However, I was advised the partition deed should be post settlement of the purchase of mother land.

Now I have got the DA approval for the subdivision so I thought it is time to sign the deed.

But after your and Terry reply, it seems I am too late?

 

Hi Terry and Paul,

I am referring to Version 2 of Revenue Ruling No. DUT 35 has been released by Revenue NSW.

https://www.revenue.nsw.gov.au/help-centre/resources-library/dut035v2

It seems my case falls into ruling 9 and 10? if my understanding is right, I only need to pay $50 for this?


9.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 the minimum duty of $50 under section 30(4).
10. Where there is an Agreement for Partition, the Agreement is stamped with ad valorem duty (or the minimum $50) and any transfers in conformity with that Agreement are charged with $50 each under section 30(4). Where there is no Agreement, one instrument is stamped with ad valorem duty (or the minimum $50) and any additional instruments which effect the partition are charged with $50 each under section 30(4).

 

This is what I assumed has happened. Have a read of the legislation that I quoted - forget the secondary sources for now

what s the dutiable value?
the sum by which the unencumbered value of the dutiable property transferred,
exceeds
the unencumbered value of the interest held by you now?

You will definitely pay duty if it is a partition because there is a minimum $50 charge.

 

Hi Terry, I understand I will need to pay difference, but my understanding is it is not going to be significant.

May I ask with the deed or without the deed, do I pay the same stamp duty or not? If yes, why do I need a deed?

Cheers,
Chris

 

This really needs legal advice. I would never attempt to self prescribe a transfer and duty concession. Get it wrong and OSR wont be forgiving and may involve double duties even. Best value advice is advice that works as intended.

The DOP likely evidences a trust relationship so that the the beneficial (trust) rights become legal (title) rights on the transfer. No deed and its a change of ownership. Its a requirement of clause 14. In all cases I have seen the deed has been stamped by OSR or given a private ruling at the time it was made to avoid the Commissioner refusing the deed

 

without the deed could it be a paritition?

Without it being a partition the concessions of s30 couldn't apply

 

I have seen alternatives given to OSR but its hard work and uncertain. eg Apparent purchaser transfer. And expensive since high level legal advice is a factor. The deed route is easier for sure.

 

Hi Paul and Terry,

Thank you very much for your input.

My solicitor advised me I need to do partition on the mother land before I do subdivision with LRS.

However, I just saw a article where the example is to partition the subdivided lots.

Partitioning real property - what is it and what are the tax implications? - Economos

What do you think these two cases?

Thank you.

Cheers,
Chris

 

Not sure what you are asking but you seem worried so perhaps you should go and get a second opinion.

What did the lawyer charge you for the deed and associated legal advice?

 

Hi Terry,

Are you able to explain the application of 30(3) using real numbers - I've never really understood the wording in the section. Assume the following circumstances:

1. Person A and B buy a property through a bare trust for $600,000 each (50/50 split) and pay stamp duty
2. Immediately upon buying the property, they sign a deed of partition
3. They then subdivide the property, build 2 townhouses with a market value of $1.5M each and register 1 title in each person's name

Is there additional stamp duty in this case on the difference between $600k and $1.5M, or is the whole point of the deed of partition to avoid stamp duty at the 2nd transfer because their actual % interests in the land hasn't changed?

The only reason I ask is because the SRO (Vic) require the submission of a valuation upon registration of each block into each person's name, and I've never understood why..

 

I would imagine and expect this is all part of the legal advice which relates to this structure. Given that other issues could impact all this its potentially a problem to expect legal advice for free on such a complex process. One little thing is all it takes.

There can be very sound reasons to partition and settle the land in some cases and in others to transfer the completed property

 

Yes, I agree. It's really just a basic question with different numbers to ones used in Terry's Tax Tip on partitions. Just wanted clarification on the operation of 30(3)..