Selling property to spouse and then buying back?

Hi all,

I am looking to turn my PPOR into a IP and was wondering what is the most tax efficient approach. My details:

Location: NSW
PPOR value: $1m
Current mortgage: $250K
Only my name on title

I realise that it would be best to sell this place, use the proceeds to buy a new PPOR and get a new mortgage to buy a new IP to maximise my tax deductable debt. However, my wife would really like to keep this place so I was wondering if it was possible to sell the property to my wife, at market value and paying the appropriate stamp duty, and then buy it back, financing the buy back with a much larger, tax deductable mortgage?

Assuming a $1m property value, I understand I will be paying 2 lots of $40K stamp duty compared to just one $40K payment if I were to sell and buy a new IP instead. However, by selling to my wife I would also save around $25K from not having to pay agent commission/advertising fees. So essentially, by paying an extra $15K, I can achieve my goal of keeping this property as an IP with maximum tax deductible debt?

Do you think the ATO would allow this?

Also, I read that I could actually transfer 50% to my wife without incurring stamp duty (given this is our PPOR). Could I then transfer 50% (no stamp duty charge), then sell the remaining 50%, and then buy back the full amount? So essentially the same as what I described above but reducing the total stamp duty paid by the first $500k transfer?

Any advice would be much appreciated

 

I have written a tax tip on this.

Double duty is hard to take. Why do it twice? I assume because your wife has low income? Ato may also deny the deduction of interest.

Consider selling to a fixed unit trust and borrow to buy the units. Same result with 1 lot of duty.

Seek tax advice and legal advice before trying.

 

Another option....Consider selling 50% to wife. This form of contract is exempt from stamp duty in NSW while it remains your home. You can move out the following day etc to rent it out. The market value at that date becomes the CGT cost base too.

Example - Wife borrows $400K for a 50% share. She pays you. You do need to repay 50% of the current loan leaving $525K on the property as a loan.

The benefit of this arrangement is that you can use $275K ($400-$125k) for the new home and its sort of tax deductible.

 

Sale to related entity, or sale and buyback.

Get legal advice on whether the general anti-avoidance provision might strike down the tax benefit.

TR 2008/1

 

Can you elaborate on that technical term?

"Hi ATO, don't audit my return as its sort of legit"?

 

Thanks for the replies.

Yes, my wife does not work (sorry should have mentioned that) so I willing to pay double duty.

So I guess my options are:

- Sell and buy back - best option but very likely to be viewed as anti-avoidance - will seek legal/tax advice
- Unit trust - will seek advice on cost/effort to maintain - may not be worth it for just one IP
- Sell only 50% instead - duty exempt since it will be PPOR at time of transfer - half rent goes to wife (able to use up $18k tax free threshold), my original $250K is tax deductable and if she finances $400K to purchase her half then its also tax deductable, although useless until she goes back to work.

I actually applied for a PR but in that proposal I was going to sell only 75% (since I already have $250K of tax deductable debt) and it buy back. Not surprisingly it got rejected.

 

I had a PBR approved for someone selling their property to a fixed unit trust and borrowing 100% to buy the units. This allows it to be done with just one lot of duty.

 

Thanks Terry, unit trust probably the way to go. Will look around for an accountant to find out costs to setup and maintain such a structure.

 

Selling your portion to your spouse is one thing but then buying it back is clearly a scheme..
Ato will not approve.

 

Good luck finding a lender. STG was the last (?? happy to be corrected) remaining lender who will lend to the UNITHOLDER using trust property as security. All other lenders now require loan to the trustee. This can leave a quarantined loss if there is a neg gearing loss. A loan between the unitholder/s and trustee to overcome this certainly has hallmarks of a Part IVA concern since the tax benefit is no quarantined losses. Also failure for the loan to be settled for units seems a risk to the arrangement. Provided the unitholder borrows and settles their units I see no concerns though.

 

Yep St G is my lender of choice for these. Others supposedly do it, but more difficult to get through.