Strategy: 50% Spousal Transfer Strategy to Increase Deductions

Property is owned jointly (husband and wife), has been PPOR / main residence entire time it has been held, and is security (mortgaged) to a bank loan in both names.

One partner wants to buy the remaining half. Preference is to not discharge the existing loan.

Questions (@Terry_w):

1. Bank funds will not be required for the settlement, but the title will change, so presumably the bank needs to be party to the settlement. Would this generally require the loan to be discharged and a new loan established or could this be completed through a loan variation?

2. What if a deferred settlement/installment contract was used, with the initial deposit being 99% of the consideration, and the final 1% deferred for many years – maybe even to when the property is sold? No change to title, hence no change to loan?

I believe stamp/transfer duty would be payable in either case.

 

was the loan used to acquire the main residence?

1. Mortgage needs to be discharged and relodged which will need the bank to take part.
If ownership is changing the bank will require a new loan application in nearly all cases.

2. Yes this could work. CGT can be triggered now without title changing hands yet - but would be a breach of the loan agreement with the bank probably.

Beware if you intend to claim the interest on the loans.

 

No, loan is used for other deductable investments.

Ok, might be a terminoligy thing - no issue with application, or with discharge/relodge of mortgage (fees aside), but want to avoid any changes to loan accounts / splits etc by the bank.

Good point - thanks - will review loan agreement

Thanks - should be ok though I believe as the loan is for income producing investments unrelated to the property.

 

Not necessarily.

 

Why would that be?

 

With the change in ownership there could be notional repayments of loans. It might be ok, but you should get specific tax advice just in case

 

Interesting. So the ATO could make an assumed repayment of the loan even if no actual repayment occurred and there was simply a substitution of security? Or are you referring to a scenario whereby the loan is refinanced in some manner due to bank processes?

 

I would think if the loan account number stays the same and the borrowers stay the same it should be ok.
But where X and Y borrow and then Y uses the funds to buy shares, of this changes to Y borrowing this could mean something different. I have never encountered something like this.

 

Hi Terry If a mortgage has recently been paid out husband and wife have equal ownership of the PPOR what are the tax implications for a transfer of husbands 50% to wife 100% wife has total ownership; no divorce, the property is in Qld Regards Ebby

 

Thanks @Terry_w for such an informative post.

We literally went through the exercise of contemplating this with our mortgage broker and tax accountant just a few weeks ago. Both of them independently concluded that it would not be worth it for us due to stamp duty costs in Victoria.

 

I have a tax tip on this.

It would be stamp duty plus a cgt event triggered but the main residence cgt exemption may mean no cgt

 

Tax Tip 100: Transfers between Spouses and CGT https://propertychat.com.au/community/threads/tax-tip-100-transfers-between-spouses-and-cgt.9275/

 

Really sad that we didn’t do this in Vic 18 months or so ago when there was the tax exemption still present.

 

Got any properties in SA?

 

nope unfortunately not.

 

Is this still doable in NSW without lying stamp duty? We have a property in my wife’s name and I was wondering if it could work with me buying 50% of it? Could help us pay down a PPOR we are about to buy..

 

Yes could be possible if the ppor

 

Quick question on the above if anyone who knows can inform:

Post July 2017, the spousal transfers in VIC still exists (for residential property) where the property in question is a PPOR without involving any stamp duty?

 

It does, but the transfer cannot be for consideration if you want the duty threshold and that will mean no interest would be deductible if borrowed to do - plus the original owner could now only claim half the interest they previously claimed

Tax Tip 161: The new Duty on Spousal Transfers in VIC Tax Tip 161: The new Duty on Spousal Transfers in VIC