Stamp duty when subdividing joint owned property

Hi everyone,

I have an investment property that I own with my sister and we are hoping to subdivide it in the coming years. I now know buying in joint names has severely impacted my future borrowing capacity and I was hoping to slit the title during the subdivision process.

I know there will be stamp duty fees involved but will we have to pay capital gains tax as well?
Also does anyone have any tips on how to go about splitting the title minimizing stamp duty and other costs?

 

Yes stamp duty on the value transferred which will be 50% for each block

and CGT too if title changes (or income tax)

Not much you can do to minimise costs, unless you had a deed of partition drawn up at purchase.
Legal Tip 77: Joint Purchasers of Land and deeds of partition https://propertychat.com.au/communi...urchasers-of-land-and-deeds-of-partition.3888

 

Thanks Terry. I was afraid that we would have no way of reducing the stamp duty.
A couple of questions because I am still learning all of this and I like thinking outside of the box.

Is there any way to have a deed of partition drawn up at this late stage? and if so would it be worth it?
Is it possible to subdivide the land before we construct on it so the property value is not as high and thus reducing the stamp duty?
And finally would there be a way to structure it to be like we are buying off the plan as it will be newly constructed and reduce the stamp duty that way?

Sorry if these are silly questions.

 

Yes you could subdivide before constructing so the value would be lower and thereby save stamp duty. A empty lot may be the optimal for this, but you have to tie it in with other things such as finance, CGT etc

I don't know if you could set up a deed of partition now without triggering stamp duty because you will have to convince the OSR that there is a trust relationship where you own 50% of your share as trustee for your sister and vice versa.

 

My wife and I are doing something similar. Property bought as joint tenants in 2013 in Sydney. Currently undergoing subdivision.

- If you subdivide without changing ownership, then no stamp duty, no CGT (lot A jointly owned and lot B jointly owned).
@Terry_w correct me if I'm wrong

- If you subdivide and then change ownership, stamp duty on transfer (as above)

- If you enter a deed of partition before subdivision, upon signing, you are subject to CGT. The later you do this, the bigger the CGT assuming it has grown a lot in value eg. Sydney. Because it was jointly owned (50-50), stamp duty is minimised is the value of both lots are of similar after subdivision. If both lots are exactly the same value after subdivision (unlikely), then no stamp duty. There is an article link on Terry's tip above, see page 21 and 22.

- me and wife have decided not to go through with deed of partition. Yes we are throwing away some good benefits, but we simply can't afford the CGT. But, we are alterwring tenancy from JT to TIC in equal shares for asset protection and estate planning.

I learned most of this through Terrys tips.

 

subdivision doesn't trigger CGT if the new titles are owned by the same persons as the old titles

 

Seek legal advice as subdividing isnt a CGT trigger. If you were TIC/JT on the one title and remain so under two titles there is no issue. The partition would assist to correct that "shared" title so each of you hold just one.title each. Just be wary of a potential GST issue with partitions and so use of the land needs review. The CGT issue may not be as bad as you suspect with on 50% of the gain on the land being transferred and subject to duty. Then of that only 50% taxable.

 

Thanks guys that helps a lot

 

And changing from JT to TIC in equal shares doesn't trigger CGT either. But unequal shares would.

 

Land tax:
Having separate ownership of each lots means you also hold individual land tax thresholds. This can minimise land tax or even escape it.

 

More likely to increase the total value, After all that why people subdivide. If it didnt enhance value nobody would subdivide. Many people with dual property on same title (ie duplex) dont subdivide for that reason. It limits the ability to sell one keep one but it retains a lesser land value for those that plan to keep both. Normal strategy is to defer subdiv until proposed sale.
eg One lot of land may have a value of $400K but two smaller lots valued at $275K each.

The legal and land title, council costs etc plus stamp duty and CGT costs involved with a subdiv and then having a lot each just to save a few $ of land tax need review. The land tax saving may not be worth it.

 

Hi Peter,
Just seeing how you ended up going with this one?

Doing something similar now.

 

Hi Terry

I am trying to clarify what you mentioned in your comments above . My wife and I hold a tenants in common title in equal shares on a investment property we in the process of subdividing . The 2 new titles will be held as TI unequal shares (70/30) is stamp duty and CGT payable .We are in Victoria
Should we leave the 2 new titles as TI equal shares to minimize stamp duty or CGT

 

whoever is going from 50% to 70% will pay CGT and Stamps on the difference

 

Ok .Thanks . I am retiring and my wife has another 10 yrs hence the reason for the 70/30 TIC .If I leave the 2 titles as TIC in equal shares ,do we still incur stamp duty and CGT
Lucky I caught this early or a rude awakening

 

Assuming the 50/50 split has been in operation from the outset, by leaving the property in the same ownership proportion (you both own half of each subdivided lot), then there’s no change in beneficial ownership of the underlying land. Hence no CGT or stamps.

 

You will also lose deductibility of interest in full if you change from 50/50 to 70/30

 

Thanks.I was advised by my agent my wife can claim 70% of the interest and get a bigger refund because more tax is witheld

 

Real estate agent?

 

Tax agent