Spouse transfer of IP in Victoria

Discussion in 'Investment Strategy' started by Chill, 26th Apr, 2020.

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  1. Chill

    Chill Active Member

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    I am looking for the best option to sell IP1 and keep it at the same time to release its equity to pay down my PPOR. The IP1 in question is owned by me and by transferring to the wife will incur stamp duty and CGT. The PPOR is owned jointly by both of us.

    My plan was to sell this IP1 around 5 years from now however I am being pressure by the wife to reduce our debt particularly in these uncertain economic times. I understand that we would just be moving debt from one place to another along with additional duties/taxes being added, however it could be the best option to allow PPOR debt to be reduced while still holding onto the IP1 for another 5 years.

    By transferring the IP1 ownership to the wife would also reduce land tax threshold as I have 2 properties. IP2 would be in my name still and the other IP1 in her name. CGT could also be reduced when we sell this IP1 in 5 years time as her income tax rate is lower than mine. So the sum of CGT due to the transfer now + CGT paid upon sale in 5 years would be less than if this property stayed in my name and sold in 5 years. Does this sound right?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    You will have to work out the costs to transfer it now and then see if the potential tax savings going forward would outweigh these costs. If there is minimal growth they might not.
     
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  3. Chill

    Chill Active Member

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    Good point. I didn't realize stamp duty has gone up so much! I am looking at $50K in stamp duty. I haven't sold for a long time. Too much. Maybe I will wait to see if the push to eliminate stamp duty and move it to an annual land tax takes place. Either that or find a time machine and travel back to July 2017 prior to the new Vic spouse transfer rules and do the transfer without paying the duty!
     
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  4. Chill

    Chill Active Member

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    Thanks Terry. You mentioned in another thread about Spousal loans. I am curious if I could realize some tax benefits by using this strategy. Can you explain how this process works.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Spouses can lend money to each other. There are no legal restrictions on contracting with a spouse - but there is a presumption that spouses do not contract with each other. But this is a rebuttable presumption so a written agreement should be entered into.

    For tax reasons a loan agreement would need to be in writing and on terms that strangers would enter into. If the borrower uses borrowed funds to invest the interest would be deductible as per normal. But you cannot borrow your own money so a gift to the spouse and then borrowing it back would unlikely make the interest deductible if the ATO apply the anti avoidance provisions.
     
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