If jointly owned real estate is subdivided, a partition is needed to convert the new property titles from joint ownership into separate ownership.

The subdivision could be a land subdivision or a strata subdivision. Usually, the subdivision takes place when a property development is completed. For example, two investors buy land in joint names, obtain approval and build a duplex. After subdivision, each dwelling is on a separate title, but the land remains jointly owned. Instead of selling, they decide to live in or rent the dwellings. They use a Deed of Partition and Transfers to dissolve the joint ownership, so that each becomes the sole owner of one dwelling.

If the partition is done the right way, then nominal stamp duty ($50 in NSW) is payable, instead of ad valorem stamp duty (i.e. stamp duty on the full value) on the interest transferred.

In this article we review three case studies in which the stamp duty payable was disputed, how they were decided and comment upon the right way to partition to minimise stamp duty.

Reference is made to NSW Revenue Ruling No. DUT 035 v2, issued by the Chief Commissioner of State Revenue which rules on Section 30 of the Duties Act 1997 (Partitions).

Case Study #1 – Is a single property transfer a partition?

In Chief Commissioner of State Revenue v Webeck [2015] NSWCATAP 279, the NSW Civil and Administrative Tribunal was asked to decide whether or not the transfer by members of the Webeck family of their 50% share in a house at Newport to John Webeck constituted a partition. John Webeck already owned the other 50%, and so the transfer gave him sole ownership.

The Tribunal decided that the transfer was not a partition: ‘The transfer simply transferred to John Webeck the 50% undivided interest of the other co-tenants in the whole of a single parcel of land to him.’ Therefore stamp duty was payable at full value on the land transferred.

Comment Apparently ownership in another property was being separated at the time. If so, the right way could have been to transfer the joint interest in the other property and in this property at the same time, as a partition, to gain the benefit of the stamp duty concession.

DUT 035 (para 7) … Section 30 is not restricted to instances where the partition involves one parcel of land or adjoining parcels of land. Section 30 also applies to land that is held by partners in partnership.

Case Study #2 – Do the owners hold the property jointly?

In Aoun Investments Pty Ltd v Chief Commissioner of State Revenue [2006] NSWSC 1394, the Supreme Court of NSW (Gzell J) was asked to decide whether the owners of two adjoining properties (lots 27 & 28) at Telopea, who had developed their properties jointly into 12 strata lots, could use the Section 30 concession when partitioning lots 1-6 to one of them and lots 7-12 to the other.

The Court decided they could not use Section 30 because they were not “joint owners” of the property. That is, they were neither joint tenants nor tenants in common, which is the Section 30 requirement for a partition. 

Comment When the titles to their properties were consolidated into one lot, the two adjoining owners owned the property in severalty: that is, as to the part formerly in lot 27 – one owner, and as to the part formerly lot 28 – the other owner. They were not co-owners as joint tenants or as tenants in common, and so the stamp duty concession did not apply. In this situation, the right way is to consolidate the titles and transfer the title into joint ownership before the building work commences, while the property is undeveloped and its value for stamp duty purposes is low.

DUT 035 (paras 11 & 12) refers to this situation as ‘Dual entitlement’.

Case Study #3 – Think carefully of the name when buying adjoining land

In Ford v Chief Commissioner of State Revenue (RD) [2010] NSWADTAP 41, the NSW Administrative Decisions Tribunal Appeals Panel was asked if adjoining land was covered by the principal place of residence exemption for land tax. The situation was that Mr and Mrs Ford lived in a house at 5 George Street, which was solely in Mrs Ford’s name. Later on, Mr Ford bought 3 George Street (the property next door) in his name. They consolidated the two titles into one, which they intended as their principal place of residence.

The Tribunal applied the same test as for a partition and decided that the principal place of residence exemption from land tax for 5 George Street did not extend to the land at 3 George Street by virtue of the fact that Mr and Mrs Ford held the consolidated land in severalty, not as joint owners.

Comment When buying adjoining land, the right way is to buy in the same name as the existing property, unless there is good reason to buy in different name.

Select provisions of DUT 035

Calculation of duty (paras 8 & 9) The duty payable is the amount by which ‘the unencumbered value of the undivided share of each partitioner in all the land being partitioned’ exceeds ‘the unencumbered value of the divided part taken by that person’.  If there is no excess value, nominal duty is payable. If there is excess value, duty is payable on the excess value.

Estates (para 13) ‘As land which is the subject of a partition is required to be held jointly, any partitioning of estate land in NSW which is held by a trustee, executor or executrix does not fall within Section 30. A transfer to the beneficiaries should be stamped under Section 63 of the Duties Act 1997 prior to partitioning.’

Evidence (para 14) ‘In addition to the documents effecting the partition, the following documents are required … :

  1. Evidence of value for each parcel of land subject to the partition…
  2. A current Certificate of Title for each parcel of land subject to the partition.

Final Comments

Stamp duty is not the only tax to be considered when partitioning property. There is also capital gains tax and goods and services tax to be considered. And there is land tax if the partitioned property is to be owner-occupied.