To build as tenants in common, but than would like to separate titles

Hello,
We (my husband, my brother , sister in law and myself) bought an old block of land a couple of years ago (2016) with joint finances- and all 4 names on the title. We are getting ready (well, as you can imagine, it takes time) to build 2 modest (but still our dream home) units on that land. As my husband and myself are much older in this combination, we hope to settle and stay there after countless years of moving around. Neither family would be able to afford this project without the joint finance situation, but when the building is finished we have all agreed that it is better to have two separate titles and have clear situation as we both have kids. What are the tax implications? Has anyone done something similar?
At what point in time is it best to separate titles? Any advice how to minimize the cost/ tax implications ? Any advice would be greatly appreciated
Bianca

 

I suggest you seek expertise recommendation, the below was given to me some time ago, so quite few things to consider:

1. Future Development
a. Your desire to purchase a site for future development is a strategy that will allow you to create your own equity due to:
i. Land utilization
ii. Reduced stamp duty
iii. Lower taxes particularly GST
iv. Economies of scale
b. You will need expert assistance in the planning and construction phases as there are many areas where costs can blow out and many sometimes-hidden costs that will need to be met
c. Longer term if you sell any unit there can be lingering warranty issues that can be directed back to the land owner so a proper structure to limit these issues is essential
d. I would suggest buying in multiple entities as tenants in common and on completion separate the title into individual owners and no longer multiple owners as tenants in common. There are normally significant taxes in the split but with partitioning these can be avoided.
e. Splitting titles will also make refinancing after construction normally easier and longer term financing is more flexible as you can use multiple lenders instead of always having to use the same lender for the three units
2. Partitioning
a. This strategy allows for two or more parties to develop together and then have their own titles on the ones they individually keep. This could be a strategy to look at if the development options is appealing but not totally within your scope so this allows you to work with someone else. As a note of caution, working with others has risk to ensure you have a properly prepared agreement between the parties to protect your interests and safeguard the project.
i. In this strategy you can buy using multiple entities on title ie tenants in common and at completion of construction you split titles to show just one entity on each
ii. No CGT/tax, GST and no stamp duty in NSW, Victoria and WA. Other states including Queensland impose stamp duty on title change. There are ways to limit the stamp duty in Queensland and will need further discussion if you go down this path
iii. Costs to do a partitioning agreement can range between $7-10K if two parties involved developing two properties ie one each. For more properties costs increase but marginally. Best would be to obtain quotes. On a two property two party development in taxes could cost over $90,000 for each on a $500K individual property which is significantly more than legal fees. If parties use a trust or other structure costs of these structures would be added.
iv. The name on titles would depend on whether investment or PPOR

 

SHould have been partitioned at purchase, but get some complex legal advice as you can still save.


Legal Tip 77: Joint Purchasers of Land and deeds of partition Legal Tip 77: Joint Purchasers of Land and deeds of partition

Tax Tip 236: Stamp duty and Partition of Land in VIC after settlement Tax Tip 236: Stamp duty and Partition of Land in VIC after settlement