Spousal Transfer of a Principal Place of Residence – Tips to Avoid Claims

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
• the person who receives the benefit of the exemption 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 (the ‘residence requirement’).

Practitioners also need to be aware that the property must be the principal place of residence of the person claiming the exemption. Otherwise, the exemption will not apply. For example:

• a spousal transfer of an investment property is not eligible for this exemption
• similarly, a transfer of a residence between spouses may not be exempt from duty if each spouse is claiming a separate property as their principal place of residence.

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.

Solicitors may wish to use the following wording in their letters (subject to any necessary amendments to make it 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.

To be eligible for the spousal transfer duty exemption, the person claiming the exemption (here, 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.

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.”

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]