Many factors go into working out how best to divide assets following the breakdown of a relationship. One factor that can be overlooked in negotiations is the taxation consequences of a proposed division. It is important to understand how stamp duty in particular applies to family law settlements.
Stamp Duty is a tax levied by State and Territory governments. Typically stamp duty is payable upon the transfer or sale of property. The duty payable is assessed at the time that the new ownership is registered and is payable by the new owner.
For policy reasons, State and Territory governments have created legislative exemptions for property transferred for family law purposes but it is important to understand exactly when a transfer will be stamp duty exempt.
Stamp duty exemptions operate differently in different States and Territories. Which legislation applies is dependent on where the property itself is located, and hence where a transfer will need to be registered.
In the ACT, section 74B of the Duties Act 1999 (ACT) creates an exemption on a transfer under ‘an order of a court under the Family Law Act 1975’ or ‘under a financial agreement made under the Family Law Act 1975.’ This means that if parties enter into a Binding Financial Agreement (BFA), Consent Orders, or an order is made by the Court, then a transfer of property in the ACT pursuant to any of these will be stamp duty exempt, regardless of whether the transfer is to a party to the relationship or another person or entity. This is important as it can sometimes be the case that arrangements are made for property to be transferred to a business partner, parent, sibling or adult child depending on the particular circumstances of the family.
The situation is somewhat different in New South Wales. Section 68 of the Duties Act 1997 (NSW) states that no duty is payable if, according to Court Orders or a BFA ‘the property is transferred, or agreed to be sold or transferred, to the parties to a marriage that is dissolved or annulled, … , or to either of them, or to a child or children of either of them or a trustee of such a child or children.’ (note that an identical provision applies for de facto couples). This means that the property must be transferred to a party to the relationship or one of their children for the exemption to apply, and is therefore narrower in scope than the ACT exemption.
ACT residents that have investment properties in NSW may find themselves in a situation where they seek Court Orders in the ACT, but it is actually the NSW duties legislation that applies to their property. It is crucial to obtain legal and financial advice as to the taxation implications of any proposed property division.