Tax implications of transferring ownership

Hi all,

I am undertaking a retain and build subdivision of a site owned by myself and my wife and looking to create the new vacant lot in my name only, and I’m wondering what the tax/cost implications of doing so would be. I understand that even though I am on the current title it would still be a ‘deemed sale’.

Details:

• Parent lot owned 50:50 by myself and my wife.
• New vacant lot to be owned 100% in my name.
• Retained lot can be in either both our names, my wife’s name, or mine (we earn about the same so I am interested in whether there is a current financial advantage to one scenario over the other).
• Property has been owned for over a year.
• Unlikely to be any CG increase on the current underlying property value; potential increase once subdivided.
  
• Located in WA.

Potential Cost implications:

• Capital Gains Tax
• Stamp duty
• GST (sake of vacant lot)

Is anyone able to clarify whether and how the above taxes/would be applied for the above situation?

• Would I/we be liable to pay all of CGT/GST/Stamps or only half (as I already own half of the property)?
• Would GST apply on the sale of a vacant lot in this case?
• Comparative advantages to changing ownership before or after subdivision (before = reduced CGT due to lower value; after = only have to transfer half the development so lower value for stamps etc).

Thanks!

 

#notanaccountantlawyeranything

I wonder if you could do a Deed of Partition to give each other the half ownership of each lot. There would be some potential stamp duty and CGT but you would each end up with 100% of one lot. I am unsure if JT or TIC ownership impacts this.

Is there a particular intention behind you having 100% of the new lot? I'm assuming a tax advantage but.....

 

A lawyer could advise on them all, a tax agent only on the Commonweath tax aspects.

I think it would probably trigger CGT wihtout the main residence exemption applying and there may be GST as well. It would probably trigger duty too. Seek proper legal advice.

 

Doing a bit of strategising to see if I can potentially qualify for the National Gov HomeBuilder grant, which is available to me (Aussie citizen) but not my wife (dodgy NZ citizen). With what information is available at the moment it looks like whoever is on the title is who need to apply for the grant, so as we are subdividing anyway I thought I’d explore the option of putting the new title in my name.

 

Not a bad idea. I realised my clients that I thought might be eligible are from the land of the long white cloud as well so it's a no for the Federal grant.

 

You can do it, but it would be considered roughly 1/4 of the property (1/2 of the subdivided land) to you. So there will be Stamp Duty costs.

If your wife keeps the original, and you the subdivision, you may be able to reduce this further, depending on what the difference between the value of the old and new is.

GST shouldn't apply since you are only realising the land to your best advantage.

Get professional advice.

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My posts are general in nature and do not constitute professional advice.

 

Thanks @thydzik ,

Could you clarify on the middle Paragraph/scenario? I figured that if I kept the new lot and my wife the existing lot (as opposed to me keeping the new lot and us continuing to both hold the existing) wouldn’t that trigger two sets of stamps/CGT as both lots are changing hands rather than just the new lot?

I assume that in either scenario stamp duty applies to the full value of the asset subject to a deemed sale, divided by the portion of asset which is changing hands (in this case 50%)?

Thats good news re GST.

 

If you have a vacant block in joint names, subdivide equally, but different names on title at end, There shouldn't be stamp duty as entitlement doesn't change.

Nominal transfer duty

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My posts are general in nature and do not constitute professional advice.

 

Hmm, so would this still apply if there is a retained dwelling on one of the lots being created? Or would the (likely) difference in valuations mean it wasn’t an even split and someone would have to pay?

 

most likely it won't be an even split (since someone now has a building as well). But you only pay duty on that difference.

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My posts are general in nature and do not constitute professional advice.

 

For those interested, advice from my tax accountant is as follows:

• CGT - will apply, to my share of the transfer (50%);
• Stamp duty - will apply, to my share of the transfer (50%);
• GST (on vacant lot) - most likely won't apply, but would need Tax Ruling from the ATO to be sure.
• Partition Agreement - doesn't think it could be applied, and if it was able to be applied it his opinion is that the cost would likely outweigh the benefit.

 

Accountants cannot legally advise on state taxes such as stamp duty so take care.

 

I just looked up partitioning of land in WA and the accountant is wrong on the duty front. Get some legal advice.

 

Ok, good to know. I should have added that the accountant did say I should speak to a lawyer to confirm re the partitioning agreement.

Can I ask in what respect you feel the above is incorrect re the duty advice @Terry_w ? The stamp duty situation was the one I had assumed was pretty ‘cut and dry’!

Do you think it would be worth my speaking with the WA Treasury Department and ATO re the above; or just go straight to a property lawyer? I know ‘you get what you pay for’ but I’m hesitant to spend $500(?) on advice unless I need to.

 

Accountants can and should give general advice about the existence of potential issues concerning duty and state taxes to avoid being negligent in giving advice to a client asking about a CGT event. Their advice needs to qualify they cant give client specific advice which is the role of a solicitor. I do this many times a day concerning legal, credit and financial advice issues.

In the post above, it should be a question asked of the legal adviser who would need to draft the contract and likely assist the transfer of land. It should not cost extra. State agencies are like accountants - They also cant give personal advice on a law. They just enforce them.