Legal Tip 95: Spousal Transfers and Some of the Legal Issues

JT are considered TIC 50/50 for CGT purposes.

Change of title means new loans and mortgages discharged and lodged again. Minimal costs

 

So if I strike my name off an IP I own jointly with my other half I could trigger a CG event. However if I do it on my PPOR it would likely satisfy the main residence exemption?

So taking one title of a spouses name pretty much works the same as a transfer for tax purposes? It's just the share of the property considered being transferred that is different in the case of a CGT event?

 

Any change in title would be a CGT event. You then have to look if there is an exemption which could apply. If you meet the requirements of the main residence exemption then there may be no CGT.

Taking someone off title is a transfer. names are changing.

If you spouse was already owning 50% then she would have 2 different CGT assets - first half of the property and the second half. Each half may be taxed differently in the future for example if the main residence exemption stopped applying because you moved into another main residence.

 

In that ATO article linked to earlier on subdividing, one example says:

As Kym sold the rear block of land separately, the main residence exemption does not apply to that land.

Is this saying that if I have a PPOR I've lived in for 20 years, and then I subdivide it and sell the half without the house, that the 20 years of main residence exemption I formerly had over that half of the land is completely lost, and the cost base for CGT purposes of the land sold goes right back to its value of 20 years ago - effectively as if that half had always been an IP from when I bought it?

GP

 

Cost base will be the portion of the purchase cost relating to that piece of land and other associated costs with the subdivision - apportion if shared across both blocks.

 

Well that sucks if you purchased the property as a PPOR yonks ago for way less than it's worth now.

Perhaps in that case it might be better to sell it all to the wife first and pay stamp duty again (but no CGT since it's the main residence), and thus get a current purchase date to use for the CGT cost base when selling after subdivision. If the gain since purchase was high enough, stamp duty could be less than CGT, perhaps even for just selling half and with the 50% discount.

The 12 month holding rule for the 50% discount, would that also go from original purchase date or from date of subdivision?

GP

 

Yes certainly worth considering selling. If in joint names one can bail out. If in both names sale to a trust or company before subdividing - not good if you intend to remain living there though.

 

12 month = from date of ownership. change of title = change of ownership.

So a jointly owned house going to one name = that owner would have 2 different assets, the first half and the second half.

 

Paul, you raise a good point here. My understanding is you only get to claim main residence exemption when you decide to sell....from your list I was thinking of practical use of below two....
- Overlapping PPOR periods
- Spouse / partner with a different home in same periods and a choice made

If spouse A owns PPOR (spouse B lives there as well) and couple decide to upgrade PPOR.
Family decided to buy new PPOR in spouse A's name only before selling the existing one. Is there any specific timing on how long overlapping PPOR calculation apply or is it vague as 'Reasonable time'.

• In above it may help if spouse A sells the old PPOR to spouse B. So it resets the cost base and no CGT (claiming main residence exemptions). After this spouse A buys new PPOR in his/her name only. After this spouse B decides to sell the old PPOR claiming main residence exemption hence no CGT. note during no time old PPOR has been used as income producing property.

• Consider above and assume old PPOR used as rental after being transfer to spouse B. spouse B can hold this as IP for 12 months and sell it so CGT calculation applies using new cost baseand 50% discount .

Down the track when couple decide to sell new PPOR they can repeat the process (if required).

I think the main benefit couple get by transferring in other name before selling is the spouse A increases their serviceability (might help if buying expensive new PPOR) and time is on their side when buying new PPOR and not forced to sell the old one due to serviceability.....

 

2 main residence exemptions cannot overlap - unless a sale within 6 months.

 

even if its in separate spouse name?? or married couple considers as one for main residence exemption

 

yes. one main reisdence per couple.

 

So if the subdivision didn't change ownership (eg. same owners in same TIC ratio for each half), then the date of ownership would still be the original purchase date, not the subdivision date, for the 12 month rule?

Or would the subdivision be creating two new titles, and thus making the date the subdivision date?

GP

 

Yes. no change to cost base overall.

 

I have advised a few clients who have gone off to other solicitors to do the conveyancing and have been told a contract is not necessary.

If the transfer is being done and the interest on the loan will be claimed then for tax reasons I recommend there be a contract of sale as there is a legal presumption that spouses do not contract with each other. This presumption can be rebutted with a written contract.

Care also has to be taken on the filling on of the transfer. It must contain the consideration being the market value.

Some NSW practitioners believe the exemption for stamp duty cannot be obtained where it is a sale, but this is not the case.

 

I had a client recently tell me their solicitor said - Oh do a transfer not a contract of sale. (NSW). Its cheaper and easier. I said. But its not what you should be doing. You want to sell half to your spouse. They will buy at the now higher market value. Benefits

• They will buy half at market value
• The costbase for them is reset =higher than your existing costbase (50%) and
• There is no CGT if its been your home
• AND now their loan is deductible and its being used to perhaps pay down half the old loan and buya new home.

NSW revenue dont help by using the word "transfer" and not mentioning you can contract as well.. Family transfers
A transfer can be a sale or a gift etc.

The underlying issue is CGT tax law treats the sale at MARKET value so you want to resettle a change of ownership and a refinance perhaps to enliven a new loan that is higher (and discharge part of the old loan). Lenders cant refinance is there is no consideration. It can even leave 50% of the former loan as non-deductible

 

Yes its not the change of names that is important but one of them purchasing at full market value that is important.