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Tax Tip 100: Transfers between Spouses and CGT

Discussion in 'Accounting & Tax' started by Terry_w, 20th Mar, 2016.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There seems to be a general misunderstanding out there with investors about what happens if a spouse transfers an interest in a property to their partner spouse.

    Most people don't realise that the transfer will be a CGT event. There is no exemption except on the break down of a relationship.

    Example

    Isaiah and his gay spouse Mohammed own a block of land jointly as tenants in common in 50 50 shares.

    Isaiah wants to transfer his share of the property to Mohammed for no consideration (i.e. a gift). This is a CGT event because it is a change in legal ownership of the land. It will be assessed at market value too.

    Going forward Mohammed will have 2 separate interest in the property for CGT purposes, each with different cost bases. He will have the first 50% interest and the second 50% interest (it is as if he has 2 separate properties).

    Example
    Land was purchased for $500,000 with $20,000 in costs and anotehr $30,000 in costs since holding. It is now worth $1mil. They each have a 50% interest so Isaiah's share is worth $500,000. Isaiah's cost base is $275,000 (half of $550,000) and the market value is $500,000 so that is a capital gain of $225,000.

    Going forward Mohammed has 2 interests in the land:
    A which he purchased for $250,000 and
    B which he purchased for $1mil.

    When Mo sells he will have to work out the cost base on each of these interests.
     
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  2. Cactus

    Cactus Well-Known Member

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    A very modern explanation with a gay, dual religion family to boot.
     
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  3. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Assuming the property is PPoR (and not IP block) before and after the transfer. What is the CGT implication when:
    • Isaiah transfer's his share of PPoR assuming he has jointly held the property for more than a year
    • Mohammed eventually sells the PPoR, assuing he is sole owner for more than a year after the transfer was done.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Main residence exemption would apply.

    If Isaiah lived in the house since purchase, it was under 2 hectares, not income producing etc then he won't pay CGT.

    If Mo had lived there from the beginning and from the purchase of the 2nd share he should be exempt on both portions.
     
  5. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Thanks a lot. As always your advice is much appreciated.
     
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  6. S0805

    S0805 Well-Known Member

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    @Terry_w , extending the above example with CGT 6 year rule and 2nd PPOR...

    spouse A & B lives in PPOR1 from last 5 years. PPOR1 in spouse A name only. spouse A transfers the property in spouse B name. spouse B is the owner of the PPOR1 now and both spouse A & B stays in PPOR1 for another 6 months before they buy
    PPOR2 (both on loan, only spouse A on title) and move in straight away. PPOR1 becomes IP in spouse when they move to PPOR2....

    So spouse B owned the PPOR1 for 6 months before moving into PPOR2...

    1) <6 years after moving in spouse B decides to sell IP (formerly PPOR1). can spouse B avoid paying CGT using 6 yr exemption rule? spouse B is ok to waive claiming same <6 years CGT exemption from PPOR2...
    2) assuming PPOR1 is in VIC...so spouse A claims main residence exemption when transferring to spouse B and no stamp duty being in vic...correct?
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  8. citystar

    citystar Well-Known Member

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    Would it be cheaper to divorce the wife, transfer ownership to her via family courts (CGT Free), then get remarried after an appropriate time? Of course this was never staged/planned to avoid CGT. It's just that we reconciled at a latter date... Terrible plan, she would never be foolish enough to let me put the ring on her finger a second time... =(
     
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