The Problem
with Partitions
Partition arrangements — where co-owners divide property between themselves — are commonly used in development contexts. But they create significant stamp duty and CGT risks that are frequently overlooked and can result in substantial unexpected tax liabilities.
Why partitions create
serious tax risk
A partition occurs where co-owners of property divide it between themselves — each taking outright ownership of a portion in lieu of their shared interest in the whole. This is common in development contexts where two investors jointly purchased a parcel of land and wish to develop their separate portions independently.
The tax risks arise because each co-owner disposes of their interest in the other’s portion and receives sole ownership of their own portion — potentially triggering both stamp duty (on the portion received from the other co-owner) and CGT (on the portion disposed of).
- Stamp duty — the partition may be a dutiable transfer of dutiable property in NSW
- NSW: duty concession for equal partitions — but “equal” is assessed by value, not area
- CGT — each co-owner may trigger CGT Event A1 on their disposal of the shared interest
- Where the land is development stock (a revenue asset), ordinary income implications arise — not just CGT
- GST — if the partition is a taxable supply, GST may apply on the value of the interest transferred
- All three taxes must be analysed simultaneously before any partition is completed
Do not proceed with a partition without specialist tax advice. The consequences — potentially full stamp duty on the value of the interest received, plus CGT or ordinary income tax on the interest disposed of — can be substantial and are difficult or impossible to reverse once the partition is completed.
Alternatives to Partition
Achieving the development objective without the tax risk
Considering a partition arrangement?
Get specialist advice before proceeding — the tax consequences of an unplanned partition can be severe.