Property Partition — A Potential Stamp Duty and CGT Planning Opportunity
Property & Tax Update
Where two parties acquire property jointly but intend to ultimately own different properties or portions of the property, a deed of partition may be worth considering.
What is a partition?
A partition is an arrangement where co-owners divide their jointly owned interests so that each party becomes the sole owner of an allocated property or portion.
Example:
Before partition: A and B own the land 50/50.
After partition: A owns Duplex 1 100%, and B owns Duplex 2 100%.
Stamp duty benefit
The main benefit of a partition in NSW is the potential stamp duty saving.
For an eligible equal partition, duty is generally calculated by reference to any excess value received over the owner's existing interest, rather than the full value of the property. Where the values are equal, the excess may be nil and only the applicable fixed duty ($100) may apply.
Example:
A and B jointly acquire land and convert it into a duplex, with each intending to ultimately own one dwelling. This is a private ownership arrangement, not a property development business. A intends to occupy Duplex 1 as their main residence, while B intends to rent out Duplex 2.
If A and B initially own the property 50/50 and, following completion, partition the property so that A receives Duplex 1 and B receives Duplex 2 of approximately equal value, the partition may qualify for the NSW partition concession. This can potentially avoid the ordinary transfer duty that would otherwise apply when transferring each dwelling to the respective owner, subject to the relevant requirements being satisfied.
Potential CGT benefit
A partition generally involves a change in ownership and can trigger CGT event A1. The timing of the partition can therefore be important. If the partition occurs soon after acquisition, before significant growth in value, there may be little or no capital gain arising from the partition itself.
Simple illustration:
| Without partition | With early partition | |
|---|---|---|
| Ownership | A and B remain 50% owners of both duplexes | A owns Duplex 1; B owns Duplex 2 |
| Future growth | Each party retains an interest in both duplexes | Each party owns 100% of their allocated duplex |
| Main residence | A's interest in Duplex 2 may remain subject to CGT | Future growth of A's main residence may potentially qualify for the main residence exemption |
| CGT A1 | No partition event | A1 event occurs, but early timing may limit the gain |
Planning opportunity
Where parties acquire property jointly but intend to separate ownership, an early genuine partition may provide an opportunity to reduce transfer duty and potentially improve the future CGT position.
The structure should be reviewed with legal and tax advisers before the partition is completed to ensure the requirements for the NSW partition concession are satisfied.
Ace Solutions Accounting & Taxation
This article provides general information only and does not constitute legal, accounting, taxation or financial advice. Property owners should obtain professional advice relevant to their particular circumstances.