LPLC is continuing to see conveyancing claims where practitioners have assisted clients transferring property to a spouse or domestic partner, with an exemption from paying land transfer duty under section 43 of the Duties Act 2000 (Vic) and have failed to provide adequate advice about the criteria for the exemption.
For the transfer to be exempt from duty, the property being transferred must be residential and no monetary consideration is given. Further, s43A of the Duties Act requires that following the transfer, at least one spouse/partner must live in the property as their principal place of residence continuously for at least 12 months, with their residency commencing within 12 months of settlement (the ‘Residence Requirement’).
Most claims in this area arise where the client moves out within 12 months — typically to another property they have purchased — and don’t meet the Residence Requirement. The exemption is subsequently audited by the SRO who identify that the exemption was not valid, and the client is issued with an assessment for land transfer duty, along with penalty tax and interest.
In the cases LPLC sees, typically the practitioner has not provided any advice in relation to the requirement to reside in the property for at least 12 continuous months after the transfer. Had that advice been provided and understood, the client could have managed their affairs to avoid the duty or understood that their subsequent actions would trigger a duty payment.
Claims in this area can be avoided by doing the following in every spousal land transfer, without exception:
- Check the specific requirements for the spousal duty exemption under the Duties Act and the State Revenue Office website. Do not just rely on your memory — the laws governing state taxes and exemption criteria are subject to regular change
- Provide clear written advice to the client outlining the criteria for claiming the duty exemption including that they or their spouse or domestic partner must live in the property as their principal place of residence for a continuous period of at least 12 months, commencing within 12 months of the transfer
- Obtain acknowledgement from the client that they understand the criteria, including the 12-month residency rule before completing the exemption application
- Warn the client that if there is a change in their circumstances and they cannot meet the Residence Requirement, they must notify the SRO in writing within 30 days of becoming aware of that change and the transfer may be subject to duty
- Also warn that the SRO conducts compliance audits — sometimes many years after the transfer is registered — to determine whether the entitlement to any exemption is valid. If the Residence Requirement has not been complied with, the SRO will likely issue an assessment of duty as well as penalty tax and interest.
Developing good precedent letters of advice will assist in making this exercise more time and cost efficient.
Also remember that under s43B of the Duties Act, the Commissioner of State Revenue is vested with a discretion to vary and/or reduce the period of residence required if ‘satisfied there is a good reason for doing so’. The meaning of ‘good reason’ is not defined in the legislation. However, some guidance was provided in the decision of Beech v Commissioner of State Revenue (Review and Regulation) [2023] VCAT 1363 (8 December 2023) which conveyancing practitioners should be cognisant of.
In that case, the Tribunal (stepping into the shoes of the Commissioner) reviewed the Commissioner’s decision to impose duty and exercised the discretion under s43B to reduce the residency requirement based on a change in financial circumstances that was unforeseen at the time of the spousal transfer, and which prevented the taxpayer from fulfilling the residency requirement.
Further Reading
s43, s43AA, s.43A, s43B, s43C and s43D of the Duties Act 2000 (Vic)
