Property Settlement Due to Separation/Divorce

Hi All,

I became separated from my Ex about 2 years ago, and only refinanced our property into my name with court orders. I have been paying all the cost and receiving the income from the investment property and PPOR.

According to my accountant, I can still only claim 50% of the income and 50% of the tax claimable aspects up until the property was settled into my sole name. Is this correct despite that fact I've been paying the expenses and managing the property?

 

Yes, probably correct.

See
Tax Tip 17: Divorce and Deductibility of interest Tax Tip 17: Divorce and Deductibility of interest

Tax Tip 18: Strategy to Increase deductions on Divorce Tax Tip 18: Strategy to Increase deductions on Divorce

 

Not necessarily but possible. Did the orders contemplate a settlement adjustment with the wifes share of income to be adjusted ? If it was a loss then her share of the tax loss remains her share up until you became the 100% owner.

Tax law doesnt care who paid the expenses but considers the legal ownership. There are instances when I have seen orders that treat a spouse share of the past rental income to be ignored but its not common. In other cases the orders can also be very specific and call for the spouse to be paid $X representing the share of income which remains outstanding.

I would argue if the orders say nothing about settling past rental income and expenses then the date of the orders rather than the date of the transfer may be a defining date and your accountants view is correct.

 

The consent orders were purely transfer of property. So it would be on the date the consent ordered were approved, or the date of settlement the property is moved to my sole name?

 

Date of the orders. Its like a CGT event for a sale - Contract date. That date the orders are legally enforceable may prevail.

 

You are talking about the deductibility of interest? I would think it would be the date the loan changed.

 

Does that mean the 6 year CGT exception rule resets at date or consent orders. Or is that still done from the original purchase settlement?

Yes, thats correct and any income/expenditure. So it wouldn't be from consent order date? lol

 

The ATO considers that where you have borrowed to pay out the spouse this is a private expense and not you borrowing to acquire half the property. Not logical in my view.

So the deductibility would change when the names on the loan changes. You would only be able to claim the interest from your share of the original loan.

 

It was a simple transfer of name and refinance and no funds were moved between parties (nobody was paid out). Eg. The consent orders simply transferred the property into my name, and a refinance was done. It involved 2 properties, a PPOR (where I'm living now) and an investment. Both were refinanced into my name.

 

Even without money changing hands you have essentially borrowed to pay out the spouse.

 

Not to acquire the property !!

 

I would think that these are all issues requiring specific tax advice and guidance. The CGT cost resets so that tax law will treat the property as if you have always owned 100% of it despite the 50% changing title.

You dont acquire the other 50% through refinance. However if lets say the spouse and you had a loan of $300K and the orders say you must give her $100K and she must give you 50% its possible that the original $300K is now all yours (if it relates to the original acquisition ONLY) in which case then your deductible will be that whole sum but you cant add the $100k ordered as that is private. Alternatively if the $300K loan is paid down at date of orders to $150K and you also must give her $100K then I believe your deductible is $150K.

Everyone is different. You cant enhance a loan due to orders. At best it may remain deductible or may reduce.

 

Does the 6 year cgt rule also reset (Eg. If I moved an investment to PPOR) or is that still from the original purchase date?

 

I believe it will be considered that, for tax purposes, you had always owned the property from the beginning - as if the spouse was never a partial owner.