Family Law and Victorian state taxes: What separating couples and their advisors need to know

Separating from a spouse or de facto partner is stressful enough without unexpected tax bills complicating matters. In Victoria, the intersection between family law and state taxes, particularly stamp duty and land tax, often goes unnoticed until it is too late. That is, unless advice is sought from professionals equipped to navigate all the interwoven aspects of a settlement. A well-structured settlement can avoid unnecessary costs for separating couples, but this requires careful coordination between family lawyers, tax advisors, and property specialists.

While individualised advice is paramount, there are several key issues that both separating couples and their advisors should consider to ensure family law settlements proceed smoothly from both a family law and tax perspective.

Stamp duty and relationship breakdown exemptions

In the event of a relationship breakdown, there are duty exemptions that may apply depending on the particulars of the situation and the dutiable property in question.

Section 44 of the Duties Act 2000 (Vic) provides a duty exemption for transfers of dutiable property made as a result of the breakdown of a marriage or domestic relationship, but there are strict requirements in relation to the transferor and transferee. The State Revenue Office of Victoria also sets out the evidentiary requirements that need to be provided in order to seek exemptive relief under section 44 of the Duties Act.

Where assets are held through companies or trusts, the duty position becomes more complex.

Below are three key considerations for assets held through companies or trusts:

1. Landholder duty would apply at first instance under Chapter 3 of the Duties Act if shares or units are transferred in an entity holding Victorian land worth $1m or more.
2. Landholder duty would also potentially apply if a change of directorship is undertaken between spouses in a landholder.
3. The relationship breakdown exemption generally does not extend to such transfers and if so, in limited circumstances.

Land tax implications for separating couples

Under the Land Tax Act 2005 (Vic), several issues can arise post-separation that, without the collaboration between advisors and legal professionals, can come as a surprise later down the track.

1. Principal place of residence (PPR)
   Only one property will generally be exempt under the principal place of residence exemption. Where each spouse claims a separate PPR, different rules apply in different states.
2. Trusts
   If property is owned by a family trust, land tax at trust surcharge rates may also apply in Victoria, subject to any trust nominations in place.
3. Absentee owner surcharge
   If one spouse moves overseas and depending on their citizenship/permanent residency status, there may also be a liability to the absentee owner surcharge in Victoria.

Each of these considerations can be easily missed amongst the complexity of a separation (even by advisors) given they interlace different practice areas of law. But the reality is, however, that addressing these issues from the outset can ease financial and administrative stress at a time when emotions are high.

Growth Areas Infrastructure Contribution (GAIC) liability during separation

GAIC is a one-off, state-level tax levied on landholders in designated growth corridors of Melbourne, Victoria, when land is sold, subdivided, or developed. For couples owning development land in growth areas in Victoria, the Growth Areas Infrastructure Contribution (GAIC), under the Planning and Environment Act 1987 (Vic), can be triggered by dutiable transactions, including transfers arising from family law orders.

While s 201RF of that Act provides limited deferral mechanisms, there is no blanket exemption for relationship breakdowns. Couples must check whether the family law transfer accelerates GAIC liability.

Capital Gains Tax (CGT) rollover relief available for some separating couples

CGT is the tax applied to the profit made from selling assets like investment properties, or shares, rather than a separate levy. CGT rollover relief is a tax concession that allows taxpayers to defer paying tax on a capital gain when a CGT asset is sold, transferred, or involuntarily disposed of, provided the proceeds are reinvested into a replacement asset or a specific restructure occurs.

Under Subdivision 126-A of the Income Tax Assessment Act 1997 (Cth), CGT rollover relief is available for asset transfers between spouses if it results from one of the following:

• A court order under the Family Law Act 1975 (Cth) (FL Act), or a state, territory or foreign law relating to relationship breakdowns.
• A court order made by consent under the FL Act, or a similar foreign law.
• An award made in an arbitration under the FL Act, or a similar award under a state, territory or foreign law.
• A binding financial agreement (ss 90G, 90UJ of the FL Act).
• Pursuant to an arbitration award under the FL Act or a similar award under a state, territory or foreign law.

Rollover relief generally does not apply if you and your spouse divide assets under a private or informal agreement.

Key takeaways for separating couples

1. Seek advice early
   Don’t transfer property or interests in property without first consulting both a family lawyer and tax advisor.
2.  Formalise properly
   Use a court order or binding financial agreement to access both duty exemptions and CGT rollover relief.
3.  Check ownership structures
   Trusts and companies complicate matters and may trigger further tax consequences.
4.  Review tax issues
   Ensure correct PPR claims, duty exemptions and land tax treatment are properly considered.

Family law settlements are about more than just dividing property, they are about preserving wealth. Without careful attention to Victorian state taxes, separating spouses risk losing part of their settlement to unnecessary duty or land tax liabilities.

The best outcomes come when family law and tax expertise work hand in hand from the outset, both for clients and their advisors. You can get in touch with Macpherson Kelley’s family law and state tax lawyers today.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.