In this article we explain what a partition agreement is and everything you need to know about partitioning land in Victoria.
Here’s a common scenario: you and your relative want to buy a block of land jointly, build two house on the land, subdivide it into 2 lots, and then transfer one lot each into your individual names. How do you do this while avoiding or minimising stamp duty and other taxes? You need a partition agreement.
What Is A Partition Agreement?
A partition agreement is a document that outlines how subdivided property is going to be split between co-owners. If done correctly you can avoid or minimise stamp duty payable and other taxes on the transfer.
Partition Agreement Example
Say two brothers bought a large block of land as 50-50 co-owners. The brothers then subdivide the land into 2 lots. When this occurs both brothers will own a 50% share of lot 1 and lot 2. In order to have brother A own lot 1 fully and brother B to own lot 2 fully you need to do a partition transfer. A partition agreement is used to formalise this transfer.
If each of the two lots are valued the same, then no stamp duty is paid on the title change as long as the original ownership was 50-50. If one of the lots is worth more than the other after the subdivision, then the brother acquiring the more expensive lot will pay stamp duty based on the difference between the values. For example, if lot 1 is valued $500,000.00 and lot 2 is valued $520,000.00, brother B will pay stamp duty based on the $20,000.00 difference (which is very minimal stamp duty - $280.00 in the 21-22 financial year) .
When Is The Best Time To Enter Into A Deed of Partition in Victoria?
The best time to enter into a partition agreement is before you settle on the land you are buying and planning to subdivide. The benefit of doing this at this stage rather than after settlement is that you may be able to avoid capital gains tax consequences.
You can still enter into a partition agreement after your settlement or subdivision is complete to avoid or minimise stamp duty, however you may have to pay capital gains tax depending on your circumstances. It is very important to get tax advice from your accountant before doing a partition agreement to make sure you don't get any tax surprises later on.
The reality however is many clients do not consider getting tax advice before buying property, so if you plan in the future to subdivide and then partition land, make sure you advise your solicitor of these plans before settling so you can get appropriate legal advice.
What Is The Process for Partition Land?
The process of entering into a partition agreement and then transferring property involves the following steps:
- Finding a block of land or property you wish to subdivide.
- Before settling on the property, enter into a partition agreement stating who will be the eventual owner of subdivided lots and hold the proposed lots "on trust" for the ultimate owner. You can do this after settlement or subdivision, however please note there may be capital gains or other tax consequences. Please make sure to consult your accountant.
- Subdivide the property. Our office can help you with subdividing property.
- Conduct a complex stamp duty assessment with the State Revenue Office to assess stamp duty payable for the partition transfers. This will involve getting valuations done for the individual lots, drafting statutory declarations, and drafting the complex stamp duty application. It takes the State Revenue Office up to 30 days to assess a complex stamp duty assessment.
- Transfer the lots to their ultimate owners. If there is no bank involved this is a standard conveyancing job. When there are banks involved the transfers will need to be done as part of a refinance and the original loan will have all co-owners listed.
Capital Gains Tax, GST and Partitioning Land
As mentioned earlier in this article doing a partition agreement allows you to avoid or minimise stamp duty payable. However there still might be capital gains tax and GST consequences on the transfers depending on the circumstances involved. Before entering into a partition agreement we recommend clients obtain tax advice from their accountant before proceeding.
Need Help Partitioning Land and Transferring Property?
Are you looking subdivide and then partition land? Or are you thinking of doing this in the future? Please contact our office to organise a consultation by calling our office or filling in the form below.
Disclaimer: This article relates to Victorian Law and should not be relied upon for legal advice. Please contact us to discuss your individual circumstance to get tailored advice.