Tax Tip 68: Transfers Between Spouses and Stamp Duty in NSW

This is a brief summary involving transfers of land between a married couple or de facto partners where there is no breakdown in relationship. See your lawyer before attempting this as many side issues are involved. Note that de facto partner is defined under the Act as

Legislation
s104B Duties Act 1997 (NSW) http://www5.austlii.edu.au/au/legis/nsw/consol_act/da199793/s104b.html


Going from one name to both names possible?
Yes, if the main residence and both end up as 50/50% tenants in common or joint tenants then it can be exempt from duty. Only applies to residential land as defined under s104A


Investment Property?
No exemption available.


Transfer from one name to the other name possible?
Yes, but there are no stamp duty exemptions whether main residence or investment property
However, transferring in stages may help reduce duty. see
Tax Tip 50: Minimising duty on Spousal Transfers https://propertychat.com.au/community/threads/tax-tip-50-minimising-duty-on-spousal-transfers.4579/

Consideration?
Can be done at full consideration and still exempt from duty.

 

Investment Property ??

If a PPOR is owned by on owner (ie Dave) then anytime before it ceases to the main residence the duty exemption can be used and the other 50% can be refinanced etc. However if its an existing IP the ONLY way to satisfy the test is to move back in. Do Transfer. Move out. But must be intended as MAIN residence at that time not just some weekend event.

This strategy does have a CGT event associated with it. When its a PPOR obviously the main residence exemption covers it (or should with some advice and understanding of choices that can be made) but if the property has been a IP and the 6 year absence rule isn't met then some CGT will occur so best to do the maths before acting.

 

No exemption on a property that isn't being lived in as a PPOR, but if someone were to move into a rental property then the exemption could apply if the transfer is made while the property was the PPOR.

ss104B1(b)(i)
(i) is land on which there is a dwelling that, when the transfer of dutiable property occurs, is used as the principal place of residence of the married couple or de facto partners, or

 

Terry,

Can you comment on spousal transfer in QLD?
Situation is this: I own 9/10 of property, wife owns 1/10th - ownership is tenants in common. Property is a rental QLD and we currently reside in Vic.
Based on a property value of ~450K and making each of our shares at 50%, there would be stamp duty of ~$4200 to be paid. Is there any strategy to minimise this?

Why......b/c we have 3 props in QLD; one in my name, and 2 others are both 9/10ths split in my favour. Earlier today I received a QLD land tax letter asking me to verify my holdings. It stated that my taxable value across the 3 properties was $723250, $123K above the threshold. My understanding ( based on given advise from an advisor) was that the split (eg 9/10ths) was important for max tax deductibility for the spouse earning higher, and that land tax was treated as though it was evenly divided amongst the owners. So, I had presumed my taxable value was $505K, which is well below the 600K threshold! Well, he was wrong and I will now pay for it.

 

I have a tip on stamp duty and spousal transfers in QLD. No concessions unless it is the main residence going from one name to both 50/50 and it is a gift.

Get some tax advice before you transfer shares from 90/10 to 50/50 as you won't be able to claim the interest.

Get some legal advice on the land tax issues too. I don't understand what you are saying.

See also s22 land tax act
Land Tax Act 2010 - SECT 22 22 Assessment of co-owners of land

 

Thanks for the quick reply.

Are you refering to the interest on the loan on the 40% that has been moved to my wife?

What I was trying to get at was that I was of the belief that i would be below the land tax threshold by having holdings in the ratio I mentioned above. I was told that the land tax would be divided evenly amongst names on title irrespective of the percentage holding.

What I'm looking at is ways of trying to minimise/eliminate the land tax and one of the ways would be to change the percentage split of the ownership. But tis comes with the drawback of paying additional stamp duty. So basically what to to do pay less of either really?

 

There is an ATO view that you cannot borrow to buy a property from yourself and claim the interest - I have a draft tax tip on this I think.

Who advised you on the land tax issue? There is one finance broker who is also a CPA, but not licenced to give tax or legal advice and I have seen at least 2 clients who had been incorrectly advised by him on land tax.

There is not much you can do to reduce stamp duty or to reduce land tax other than transferring title. Don't forget the CGT as well.

 

He is a financial advisor, ie he has an AFSL licence.

 

Land tax is state law and only lawyers can give advice on this. He may be a tax agent and Tax agents can give legal advice in relation to commonwealth tax laws administered by the ATO - which land tax isn't.

An AFSL only allows its holder to give financial advice - not legal advice.

Do you want to sue him?

 

Do I have any recourse if his advice is documented by way of email?

 

If you have suffered a loss from his negligence then yes.

 

I haven't suffered a loss yet as I haven't paid any land tax yet. By his advice, we would have both been under the threshold and not have to pay any land taxx

 

What is the cost base for the half share transferred to spouse for no consideration? Does 50% or original purchase go through, or 0 or market value?

To maximise the cost base, can you transfer at market value with no consideration, or could you have a loan from one spouse to the other?

 

Hi Terry,
Would like to know if there's any stamp duty exemption for transferring from both names to one name between couples? The house is our only residential property.
Since one side was not able to live in OZ for more than 200 days this year. So considering if there's way to avoid land tax surcharge.
Many thanks!

 

No exemption in NSW, VIC or QLD and cannot remember other states but don't think so. See my tax tips.

 

An AFSL only relates to financial advice given for a regulated product covered by a license. You can read the license for the limitations of the license.

Property is NOT one of them. Credit advice is also not covered

Personally I would be cautious with any financial advice given by a person who also facilitates a loan. There is a potential conflict. For this reason there are ASIC imposed controls on financial product advice being given for a leveraged investment advice. Storm Financial is no better example.

 

It seems like executing such a transfer may increase interest deductions possible when a couple is converting an individually owned PPOR to an IP. Generally speaking how is each of these scenarios treated?

Scenario 1
PPOR worth $1m owned by Spouse A
Sells 50% to Spouse B
Spouse B takes out $400k loan to fund purchase along with $100k cash
Does Spouse B's loan become deductible when property is converted to IP?

Scenario 2
PPOR worth $1m owned by Spouse A, Spouse A has $400k remaining on loan.
Sells 50% to Spouse B
Spouse B takes out $400k loan to fund purchase along with $100k cash
Do both Spouse A's loan and Spouse B's loan become deductible when property is converted to IP?

Scenario 3
PPOR worth $1m owned by Spouse A, Spouse A has $800k remaining on loan.
Sells 50% to Spouse B
Spouse B takes out $400k loan to fund purchase
Do both Spouse A's loan ($800k) and Spouse B's loan ($400k) become deductible when property is converted to IP? If not what are the requirements for Spouse A to make their loan deductible?

 

1. it could be if done right
2. Spouse A's loan of $400k could not be deductible if it relates to the purchase of the whole property and they have sold half. at most $200k could be deductible.
3. same as 2

 

Thank you, that makes sense.

In the case of 2 & 3 is it best practice to split the original loan and pay off one split with sale proceeds or ok just leave as a single loan?

 

I don't think splitting is necessary for that reason