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

just curious, if you're not exchanging $ what's the benifit by doing what you're proposing?

 

silly question, but does being the first ppor make a difference for stamp duty i.e it's your first home and you're buying out your partner, is stamp duty payable again?

 

no difference

 

When I asked the question, my intention was when my spouse transfer his 50% share to me, and I turn it into IP with positive gearing, I will get taxed less coz I’m in a slightly lower tax bracket. And when I sell the property, my CGT will be less too. But after that I figured it’s not worth the hassle.

 

Would this offer any asset protection at all, for a higher risk spouse (due to owning an investment property in their name) to gift their half of a jointly owned PPOR to the lower risk spouse? Or not really if both spouses paid deposit and continue to contribute to mortgage and household expenses?

 

It would provide added asset protection, but it is not water tight.

 

Terry, very useful post. This also throws up some potential strategies around improving servicing - eg:

Husband = 45% MTR.
Wife = 32% MTR.

You could buy IP 50/50 but servicing arguably higher if you buy as TIC 90% husband, 10% wife, assuming property is negatively geared.

Assume you keep as IP for 1 year, then move into the house as your PPOR. You could go back to 50/50 with no duty. There would be CGT at 1 year point (as it has been IP for 1 year), but arguably small (esp given stamp duty goes into capital base)

 

Hi Harry

Unfortunately when 2 equal owners change percentages the amount of deductible loans interest can actually go down. There is a private ruling which the ATO said nope to because they said 2 people can't really borrow to pay themselves.

But if you are moving into a former investment property this wouldn't matter, unless the property was rented out later perhaps.

Also some lenders will assess negative gearing based on individual amounts but others on an average combined amount.

And now there has been a change in the code of banking practices banks will generally want spouses to have at least 20 to 30%legal interest in a property to be a joint borrower, but they might allow a guarantor for lesser amounts

Also the wording in the legislation is such that the duty exemption may not apply:
(1) No duty is chargeable under this Chapter in respect of a transfer of dutiable property from one person to another person, or from 2 persons to 1 of them, or from one person to themselves and another person if—

 

Hi Terry,

Thank you for sharing your tips, they can truly be a game changer in most cases. I am trying to interpret this strategy per below:

Mrs Momentum & I hold 50/50 ownership on PPOR with an outstanding loan of say $500K against this property in VIC & we intend to later on upgrade our PPOR. Let us assume market value of PPOR is $600K.

Going by this strategy:

1. I buyout 50% of Mrs Momentum’s share.
2. I borrow funds from bank to pay Mrs Momemtum for her 50% share.
3. Let’s say I borrow & pay $300K to Mrs (50% of Mrs Momentum’s share) based on market value being $600k.
4. Mr Momentum now has 100% ownership of PPOR.
5. We continue living in the same residence for 12 months from the date of transfer, so that no stamp duty is applicable for Mr Momentum. (100% ownership)
6. The $300K received from Mrs Momentum at the time of settlement sits in the offset account linked to PPOR loan to help offset the interest payable for next 12 months.
7. Total outstanding loan on the PPOR now is $800K ($500k + $300k)
8. Once 12 months are up, all the available funds from offset can be used towards purchase of the new residence, to assist with reducing the repayment applicable as the interest will be non deductible.
9. Previous PPOR owned by Mr Momentum becomes IP, and the loan is changed to ‘Interest only’ & interest on $800K is deductible 100% by Mr Momentum.

Question:

1. No CGT or Stamp duty is applicable in the above scenario if all the steps are followed. Is that correct or otherwise?
2. If no stamp duty is applicable after 12 months, is there any expectation to pay the stamp duty at the time of change of ownership % & refund is received from SRO once 12 months are up?
3. Is $300k received by Mrs Momentum seen as an income for that financial year by ATO at the time of individual tax filing?

 

the new exemption only applies where the end ownership is 50/50 or Joint Tenants.

Proceeds of the sale is never completely income. You would have to work out if the main residence exemption applies in full or in part and then work out the cost base if no full exemption.

You are also failing to take into account the repayment of the loan by the seller.

 

Our current ownership is Joint Tenants. Would this get a tick?

Or it is only workable if we had 100% ownership with one of us to start with.

No deductions have been claimed till date on Main residence, on the basis of which I would think the exemption applies in full.

Agree. The repayment of loan is payable by seller with the total loan amount increases to $800k, where interest on $300K is not deductible until the PPOR is converted to IP.

 

No to all of those