- GST and tax are governed by federal legislation; stamp duty by the states.
- Freedom from stamp duty does not necessarily mean freedom from tax or GST.
- Always make sure your client has appropriate taxation advice about business and property transactions.
In 1990, David and Debbie inherited two commercial investment properties from their parents as tenants in common in equal shares. Now they want to take one each.
They consult you and welcome your advice that under section 30 of the Duties Act 1997 the properties can be transferred with just $50 duty, provided they are equal in value. David says, ‘Well, they’re equal in value so far as we’re concerned, but what happens if there’s a difference?’
You explain that if, for example, Debbie’s property has a higher value than David’s, duty will be payable on the amount by which the value of Debbie’s property exceeds half the total value
of both properties.
No problems, they both say, and the transaction is documented and finalised.
Sometime later you receive a call from Eddie, who says he is a cousin of David. He was most impressed with the advice you gave on the partition and has a matter he would like you to fix.
Eddie is married to Edwina, whose father, Edgar, proposes to hand over the family farm to them both. Eddie and Edwina have been married for years and family relationships are excellent.
The farm is owned by a company called Edgware Holdings, which it acquired in the 1970s, and in which Edgar is the sole shareholder. For some years the property has been operated by a partnership between Edgar, Edwina and Eddie.
Good, you say. Not only is the transfer free of capital gains tax, because it was acquired before 1985 when CGT came in, but also because there is an inter-generational stamp duty exemption for farmers.
You explain that under section 274 of the Duties Act there are three applicable requirements.
- First, that Edgar must have owned more than 25 per cent of the shares for more than three years;
- Second, that the farm business must before the transfer have been carried on by Edwina and Eddie ‘whether alone or with others’; and
- Third, that the business must continue to be carried on by Eddie and Edwina.
All of which are so.