Understanding the Spousal Stamp Duty Exemption

Prior to 1 July 2017, married and de facto couples could transfer real properties between themselves (where no third party was involved) without having to pay stamp duty. However, there is no longer a blanket stamp duty exemption for transferring property between spouses in an ongoing relationship. From 1 July 2017, there are certain restrictions that married and defacto couples should be aware of when considering transferring property between themselves.

1. Principal Place of Residence

Investment and commercial properties are generally no longer eligible for a spousal stamp duty exemption. The property must be the transferee’s (the person receiving the property) principal place of residence (‘PPR’). In order to satisfy this PPR requirement, the transferee must have lived in the property as their PPR for a continuous period of 12 months from the transfer date.

Are there any exceptions to this PPR requirement?

The Commissioner of State Revenue has the power to vary the PPR residency requirement at their discretion, including:

• By reducing the period of continuous residency required;
• Allowing a longer period from the transfer date to comply with the residency requirement; or
• Allowing a temporary absence.

In any event, the Commissioner must be satisfied that there is a good reason to vary the residency requirements.

If a temporary absence is allowed by the Commissioner in accordance with the above, the transferee cannot claim another property as their PPR during that period.

What if our circumstances change?

The transferee should also note the following consequences if they apply for a spousal stamp duty exemption but subsequently fail to meet the residency requirements:

• Stamp duty will become payable and duty will be assessed at the point of non-compliance of the residency requirement (rather than being assessed at the date of transfer). As the property’s value may have increased from the date of transfer to the date of non-compliance (this period could be up to 24 months), the transferee could pay higher stamp duty than if they had not applied for exemption in the first place.
• The transferee will not be entitled to receive a stamp duty exemption on another transfer until the currently owing stamp duty is paid.

It is very important that the transferee lodges a written notice to the Commissioner within 30 days after they become aware of non-compliance so as to minimise any penalties.

2. Consideration Requirements

There must be no consideration for the transfer.  This means that there can be no payment between spouses for the transfer.

In order to satisfy this requirement, the transferee must assume responsibility for the mortgage over the property. Alternatively, if the mortgage is refinanced, it should be the same or greater than the amount of the original mortgage.  

The Commissioner must also be satisfied that:

• the mortgage was created at or before the time of the transfer;  
• it is part of a genuine refinancing; or
• if the mortgage was created to secure borrowings, that it is applied to improving the property.

What if we need to transfer for asset protection purposes?

The ‘no consideration requirement’ will impact spouses and domestic partners who transfer properties between themselves for asset protection purposes. Commonly, if one of the spouses is running a business, he or she may transfer property under his or her name to his or her wife or husband, to avoid the property being subject to creditor’s claims, particularly in bankruptcy situations. These transfers may happen by way of gift or may involve consideration such as payment of money, a loan, or other commercial arrangement.

Be aware that a court can reverse these transactions if it views them as being for creditor-defeating purposes. Pre 1 July 2017, spouses who were concerned about this risk would generally structure the transfer with a market value consideration, to show that it was a commercial transaction (noting that market value transactions are generally less likely to be viewed as being for creditor-defeating purposes). Now, under new legislation, these ‘for consideration’ spousal transfers will no longer be eligible for a stamp duty exemption. This adds to the cost of spouses wanting proper asset protection by having to pay duty.

Breakdown of marriage

Please note that the stamp duty exemptions for property transfers upon the breakdown of a marriage or a relationship will still apply, and to take advantage of this we recommend that you obtain specialist family law advice. The current legislative amendments are only relevant to property transfers where the parties are still married or are still domestic partners.

Key considerations when transferring property

The main takeaway point is that spouses and domestic partners must ensure that they can satisfy the requirements before transferring properties. Transferees should also ensure that they can satisfy the PPR residency requirements before applying for this exemption, so as to avoid paying higher stamp duty at a later stage as a result of non-compliance.

How can Sharrock Pitman Legal assist?

As Accredited Property Law Specialists, we can assist you in understanding spousal stamp duty exemptions, and provide advice for your unique circumstances. Please contact Andre Ong, Principal and Accredited Specialist in Property Law on (03) 8561 3317 if you have any queries or alternatively fill in the contact form below.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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