Diritto immobiliareTransferring real property ownership to family members in Victoria

Very often we have clients who want to transfer their real property to their partners, children or siblings. Whilst these transfers may frequently be deemed gifts (i.e. no consideration or money) is being exchanged, these transfers may be dutiable transactions.

As a general rule, in a property transfer, stamp duty is payable on:

• The market value of the property; or
• The consideration paid for the transfer,

whichever is the greater.

Gifts

The Duties Act 2000 VIC (‘the Act’) defines ‘Dutiable property’ as a wide range of real property, security interests, goods and livestock (s 10).  Circumstances where ‘related parties’ transfer dutiable property to one another, can trigger evidentiary requirements in relation to the market value of the real property.

For example, although you have ‘gifted’ your real property to a family member, the State Revenue Office of Victoria (“SRO”) may still require stamp duty payable on the market value of the proportion of the real property you are acquiring and request evidence of the market value of the property to determine the duty payable. The SRO advises that acceptable evidence of market value is:

• A letter of appraisal from a licensed real estate agent and a copy of the rate notice.
• A valuation from a certified practising valuer who is a member of the Australian Property Institute (API) or by a member of the Real Estate Institute Victoria (REIV) with sworn valuer accreditation.
• A letter of appraisal, commissioned by or for a financial institution for security purposes, providing the valuation is by a certified practising valuer who is a member of the API or by a member of the REIV with sworn valuer accreditation. The letter of appraisal or valuation should be:
• In the case of a related party transfer for full or fractional interest (without a contract or that is a gift) – within six months of the date of the transfer.
• In the case of a sale under a contract between related parties – within six months of the date of the contract.

By way of further example, if a parent transferred half their interest in real property to their child and the market value of the whole of the real property was $1 million, the child would be required to pay stamp duty on $500,000 (less any concessions or exemptions that may apply), even though the transfer was a gift.

Payment of consideration

However even when consideration is paid, if the child in the same circumstances described above had paid the parent $300,000 for their half share in the property (even though the property was worth $500,000), notwithstanding that consideration was paid, the child would still be required to pay stamp duty on the market value of $500,000.

Exemptions

Exemptions to the stamp duty requirement on transfers of dutiable property to family members are limited.

A person can transfer their interest, or part interest of real property to their spouse or domestic partner without the payment of duty in circumstances where:

• The property being transferred is residential property;
• The property will be the principal place of residence (PPR) for at least one person of the relationship – one of the parties to the transfer must live in it for a continuous period of 12 months within 12 months of the transfer occurring; and
• There is no consideration paid for the acquisition of the property.

Similarly an exemption is available in situations where there is a breakdown of a marriage or domestic relationship and the transfer is made soltanto because of the breakdown. These exemptions are subject to evidentiary requirements and s 44 of the Act and may, subject to the provisions of section 44 apply to persons who are:

• parties to the relationship;
• dependents of the parties; and
• certain corporations.

Other duties and taxes

Stamp duty is not the only payment that must be taken into account upon transfer of property ownership to a family member. Depending on a person’s or corporation’s individual circumstances and situation, the payment of Capital Gains Tax (CGT) and Goods and Services Tax (GST) may be payable by the Transferor (the person transferring over their interest of the property).

It is therefore imperative that prior to undertaking any transfer of property you speak to your accountant and/or financial planner, alongside your legal team, to understand the financial consequences of ‘gifts’ when transferring real property ownership to family members in Victoria.

If you have any queries, please contact Theresa Elhage on (03) 9600 2450.