Contributed by Rajan Verma, Senior Associate and John Storey, Partner, Mills Oakley Lawyers
A matrimonial breakdown can be a very difficult (if not traumatic) experience for the parties concerned. Fortunately, in most cases of relationship breakdown, income tax and stamp duty exemptions can apply to ensure that transactions conducted pursuant to a matrimonial property settlement will not attract any unwelcome tax liabilities.
Unfortunately, however, those exemptions do not apply to all situations that can arise in a matrimonial property settlement. The recent NSW Civil and Administrative Tribunal (the Tribunal) case of Chief Commissioner of State Revenue v Knezevic & Anor  NSWCATAP 98 (Knezevic) provides an example of how the current stamp duty exemptions for relationship breakdowns can fail.
Overview of the case
In Knezevic, the taxpayer and his former wife agreed by way of consent orders to sell their properties at public auction.
The taxpayer and his brother purchased one of the properties at auction. Prior to the sale, the taxpayer and his ex-wife owned the property as tenants in common in equal shares. After the sale, the taxpayer and his brother owned the property as tenants in common in equal shares.
The taxpayer and his brother paid stamp duty on 50% of the purchase price as purchasers, on the basis that the exemption in s 68(1) of the Duties Act 1997 (NSW) applied in respect of the taxpayer’s share which he owned both pre- and post-sale. The Office of State Revenue did not agree that the exemption under s 68 was available and assessed the purchasers for stamp duty on the full purchase price.
The issue in question was whether the exemption in s 68 applied to the taxpayer’s share. Section 68(1) provides as follows:
(1) No duty is chargeable under this Chapter on a transfer, or an agreement for the sale or transfer, of matrimonial property if:
(a) the property is transferred, or agreed to be sold or transferred, to the parties to a marriage that is dissolved or annulled, or in the opinion of the Chief Commissioner has broken down irretrievably, or to either of them, or to a child or children of either of them or a trustee of such a child or children, and
(b) the transfer or agreement is effected by or in accordance with:
(i) a financial agreement made under section 90B, 90C or 90D of the Family Law Act 1975 of the Commonwealth that, under that Act, is binding on the parties to the agreement, or
(ii) an order of a court under that Act, or
(iia) an agreement that the Chief Commissioner is satisfied has been made for the purpose of dividing matrimonial property as a consequence of the dissolution, annulment or breakdown of the marriage, or
(iii) a purchase at public auction of property that, immediately before the auction, was matrimonial property where the public auction is held to comply with any such agreement or order.
Outcome of the case
The Tribunal held that the exemption was not available. This was because the requirement in s 68(1)(a) could not be satisfied since the taxpayer’s brother was not a party to the marriage.
A critical aspect to the outcome of this case was the finding that neither the court orders, nor the sale contract, contemplated a transfer of each of the taxpayer’s and his ex-wife’s separate interests in the property. Rather, what was provided in the relevant documentation was a transfer of the entire property. Since the entire property was being conveyed, the requirement in s 68(1)(a) could not be satisfied as the property was not being solely transferred to a party to the marriage or a child of that marriage (ie because the taxpayer’s brother was a purchaser).
Had the taxpayer been successful in his argument that what was being conveyed was his interest in the property and his ex-wife’s interest in the property separately (albeit contemporaneously under a single contract) then the requirement in s 68(1)(a) could have been satisfied in respect of the taxpayer’s share which was ultimately conveyed to himself.
Potential reach of the case
Knezevic concerned land held in NSW. However, there are similarities between the stamp duty laws across the states and territories around Australia, which potentially makes the decision in Knezevic of interest to practitioners outside of NSW. The table below identifies the states and territories (other than NSW) in which the Knezevic decision could be relevant:
|State/Territory||Could the principles in Knezevic be applicable?||Reasons/Notes|
|ACT||Yes||Agreements for the transfer of property are dutiable. Moreover, s 74B(2) of the Duties Act 1999 (ACT) requires the parties to the transfer to be parties to the marriage or de facto relationship.|
|NT||Yes||Agreements for the transfer of property are dutiable. Moreover, s 91 of the Stamp Duty Act (NT) requires the parties to the transfer to be parties to the marriage or de facto relationship.|
|Qld||Yes||Agreements for the transfer of property are dutiable. Matrimonial instruments are exempt under s 424 of the Duties Act 2001 (Qld). However, the definition of “matrimonial instrument” in s 420 only covers transfers from one party to the marriage to only the other.|
|SA||Yes||Agreements for the transfer of property are dutiable. Section 71CB of the Stamp Duties Act 1923 (SA) only exempts instruments, the sole effect is to transfer an interest in a share residence between spouses or former spouses.|
|Tas||Arguably no||Agreements for the transfer of real property are not dutiable. Only actual transfers are dutiable.|
|Vic||Arguably no||Agreements for the transfer of real property are not dutiable. Only actual transfers are dutiable.|
As can be seen from the table above, most states and territories (except Tasmania and Victoria) impose duty on contracts for sale. They also charge duty on the actual transfer, but provide an exemption from duty on the transfer (or impose only nominal duty) in cases where the actual transfer is made pursuant to an agreement on which duty has already been paid (in order to prevent double duty).
While in most cases this system of imposing duty will usually give the same result as the Tasmanian and Victorian approach of imposing duty when the actual transfer occurs (and not on the contract for sale), that will not always be the case.
In Knezevic’s case, the contract for sale was for the transfer of the entire property. Under the NSW duty legislation, that contract was subject to duty. Accordingly, duty was assessed on the value of the entire property. The duty exemption for marriage breakdowns can only apply to transfers between spouses, not to third parties (such as the husband’s brother). As the contract dealt with the entire property, it could not be said to be dealing simply with transfers between spouses. That exemption therefore could not assist to reduce the duty liability.
In contrast, had the facts in Knezevic occurred in Tasmania or Victoria, the outcome may have been different. This is because the transfer would have been assessed (not the contract). Arguably, regardless of the form of the contract, only 50% of the property was transferred. Accordingly, it is arguable that only 50% of the value of the property would have been dutiable in Victoria and Tasmania. There should not have been any need to rely on the marriage breakdown rollover.
Lessons from Knezevic
Knezevic’s case not only demonstrates the limitation of the marriage breakdown stamp duty exemption, but also the different stamp duty outcomes which can potentially arise depending on the state or territory in which a given transaction occurs. While Knezevic was a NSW decision, practitioners in other states (particularly ACT, Northern Territory, Queensland and South Australia) should be mindful of this case when negotiating financial agreements for clients going through a matrimonial breakdown.
With foresight and planning, the adverse duty outcomes in cases like Knezevic can be easily prevented.