Property transactions involving multiple entities, partial transfers, and estate matters can be intricate and costly if not managed carefully. In this article, we analyse a unique property transaction that demonstrates some of these challenges, particularly in relation to transfer duty assessments. Below, we explore the complexities involved, offering insights that may make similar situations less daunting.
A Unique Property Ownership Structure
In this case, the property was owned by three distinct parties:
- Party A;
- The estate of Party A’s late spouse (referred to as “the Deceased”); and
- A self-managed super fund (“SMSF”) whose members (owners) were Party A and the Deceased.
When managing transfers across multiple entities like this, careful planning is essential to manage transfer duty obligations and avoid potentially high costs. Below, we discuss the key considerations involved in multi-entity ownership transfers.
The objective was to transfer all of the property to Party A with as little duty payable as possible.
Joint Tenancy vs. Tenancy in Common: Key Differences
In Western Australia, property can be held as either joint tenants or tenants in common. Both structures confer ownership rights, but they differ significantly regarding inheritance and sale procedures.
- Joint Tenancy: When one joint tenant passes away, their interest does not form part of their estate but automatically passes to the surviving joint tenant. This right of survivorship simplifies the transfer of ownership and is commonly chosen by couples.
- Tenancy in Common: Each party holds a distinct share of the property that can be independently sold or passed on through their estate. This arrangement is often preferred in investment properties owned by unrelated parties.
Transfer Duty: How It’s Assessed
Under the Duties Act 2008 (WA), transfer duty is payable on “dutiable transactions,” or transactions involving the transfer of dutiable property, including assets such as land, rights, chattels, and business assets within Western Australia.
Duty rates vary based on the “dutiable value” of the property, which is assessed either by:
- The consideration paid; or
- The unencumbered value of the property if there is no or unascertainable consideration, or if the value exceeds the consideration.
Transfer duty rates are an ad valorem rate assessment that is dependent on the transaction value, different rates apply with the highest rates applying to transactions exceeding $725,001. Concessions may apply in certain situations, such as for first-home buyers.
Receiving Property Through a Will
In a joint tenancy, if a co-owner passes away, the surviving joint tenant assumes full ownership without paying duty. However, if a deceased person’s share in a property is distributed under a Will, a nominal duty ($20) is payable to transfer ownership to the beneficiary.
In this case, the Deceased left a portion of the estate, including a property share, to Party A. The estate paid a nominal duty for this transfer, but in more complex scenarios, other arrangements can create additional duty liabilities, such as where the interest in the land is held by an entity controlled by the deceased and not the deceased in their own right.
Transfer of SMSF Property Shares
When the Deceased passed, the SMSF share of the property transferred to Party A under the SMSF deed’s terms. Although SMSFs typically aren’t subject to estate distribution, the SMSF’s share in this case transferred to Party A under the terms of the Will, thereby incurring only nominal duty.
Property Shares as a Substitute for a Monetary Gift
The Deceased’s Will also provided a monetary gift to Party A, but the estate lacked sufficient liquid assets to fulfill it. Party A chose to accept an additional share in the property instead. This substitution, while not explicitly detailed in the Will, was recognized as fulfilling the gift’s intent and attracted only nominal duty.
Final Transfer from the SMSF
Party A also decided to transfer the remaining SMSF-held shares in the property to personal ownership. At this point, the SMSF’s status as an independent entity made this transfer a dutiable transaction, resulting in a duty obligation based on the value of that part of the property.
Conclusion: The Importance of Legal Advice
This case illustrates the importance of professional guidance when handling complex property transactions. Through careful planning, Party A’s transfer duty on a valuable property was kept to under $7,000, a cost that could have been significantly higher with a different approach. If you’re dealing with a complex property transaction, seeking advice early in the process can help secure the best possible outcome for your situation.
About the Authors: This article has been co-authored by Sam Richardson and Steven Brown. Sam undertook his studies at Murdoch University fresh out of high school in 2020 at 17 years old, keen to pursue and interesting and challenging career. Since November of 2022, he has been with Lynn and Brown as a clerk but following the conclusion of his studies, he will be staying with our Wills and Estates team as a Law Graduate. Steven is a Perth lawyer and director and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.
