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Finance - Partners' bitter end if timing is wrong |
A bad decision about when to end their financial partnership cost Tom and Harry $10,000. |
Tom and Harry had a joint venture partnership, in which each held a 50 per cent share. The partnership owned land valued at $1 million, which was mortgaged to the bank to secure a debt of $500,000. |
When the two fell into disagreement about how the development should proceed, Tom agreed to buy Harry out. This amounted to $250,000, being half the partnership net value of $500,000 (land value of $1 million minus debt of $500,000). |
After negotiations which went on for some time, the two signed an agreement confirming the date of the dissolution of the partnership at the end of the previous month, and obliging Tom to pay Harry $250,000 and take over the debt in exchange for a transfer of Harry's interest in the land. |
Unfortunately for Tom, he is now liable for stamp duty on half the unencumbered value of the land ($500,000), amounting to $17,990. Had the agreement provided for the dissolution of the partnership on the last day of the current month, duty would have been $7,240, being the duty on Harry's half-share of the net partnership value. |
Once the partnership is dissolved, the two own the land jointly. Had the agreement said the partnership was to dissolve at the end of the current month, it would have been in existence when the document was signed and, since duty is payable at the date of first execution of a document, the relevant dutiable property would have been partnership interest rather than interest in the land. |
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