There are eligibility requirements for the exemption of duty when completing a transfer of real property between spouses or domestic partners. Clients should be advised clearly about these requirements, as the State Revenue Office (SRO) regularly audits these transactions and may seek payment of duty on the transfer, penalties and interest if there has been non-compliance.
What's on this page?
The legislative framework - when is an exemption available?
Sections 43, 43AA, 43A, 43B, 43C and 43D of the Duties Act 2000 (Vic) provide that an exemption from land transfer duty may be granted in relation to transfers of real property between spouses or domestic partners.
Eligibility for the exemption is subject to several conditions, including:
- there must be no monetary consideration given
- the property must be residential
- no one other than the spouse or domestic partner receives an interest in the property pursuant to the transfer
- where the property is transferred into the:
- name of one spouse or domestic partner, then that sole proprietor must live in the property as their principal place of residence for a continuous period of at least 12 months, commencing within the 12-month period immediately after the transfer
- names of both spouses or domestic partners, then at least one person in the relationship must live in the property as their principal place of residence for a continuous period of at least 12 months commencing within the 12-month period immediately after the transfer (whether separately or together and whether or not it is the same person for the whole period).
(together, the ‘residence requirement’)
Good practice
Key practice points:
- Provide written advice to the client outlining the criteria for claiming the duty exemption including the residence requirement.
- Advise the client in writing that the SRO may audit the transaction at a future date and seek payment of duty, interest and penalties if the original transaction was non-compliant or if the client did not comply with the ongoing criteria (that is, living in the property continuously for 12 months, commencing within 12 months of the transfer).
- Warn the client that if there is a change in their circumstances and they cannot meet the residence requirement, that they must notify the SRO in writing within 30 days of becoming aware of that change, and that the transfer may be subject to duty.
- Do not rely on your memory when advising on duty issues. Always check the Duties Act 2000 (Vic) or the SRO website.
Example wording
Solicitors may wish to use the following wording in their letters (subject to any necessary amendments applicable to the client’s circumstances and instructions):
“You have instructed us to lodge the spousal transfer duty exemption in Duties Online, as part of the transfer of your principal place of residence at 123 Bubblegum Street, Disneyland (Property) from Mickey to Minnie.
[Option 1 - use where the property is transferred to the sole name of one spouse or domestic partner]
- To be eligible for the spousal transfer duty exemption, Minnie must live in the property as her principal place of residence for a continuous period of at least 12 months commencing within the 12-month period immediately after the transfer.
[Option 2 – use where the property is transferred from one spouse or domestic partner into the names of both spouses or domestic partners]
- To be eligible for the spousal transfer duty exemption, one or both of you must live in the property as your principal place of residence for a continuous period of at least 12 months commencing within the 12-month period immediately after the transfer (whether separately or together and whether or not it is the same person for the whole period).
If, after the transfer, you become aware you cannot comply with this residence requirement, you must notify the State Revenue Office (SRO) within 30 days after becoming aware of this (for example, you may need to notify the SRO where you cannot continue to live in the Property, such as poor health or a new job). In this scenario you may become liable for duty on the transfer of the Property.
If you do not notify the SRO that the Property is no longer your principal place of residence and you cannot comply with the residence requirement, and you are audited by the SRO, you may be liable for duty, as well as significant penalties and interest.”
Resources
The LPLC has developed a range of resources about tax issues in property transactions available on our website, including a checklist to help practitioners identify the most common tax and duty issues that may arise in the purchase or sale of property.
If you have any risk management questions about the spousal transfer exemption, please reach out to Jamie McCallum, Risk Manager at the LPLC: [email protected]
