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Transfer part title to spouse on subdivision

Discussion in 'Accounting & Tax' started by GreatPig, 5th Oct, 2015.

  1. GreatPig

    GreatPig Well-Known Member

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    My wife and I currently own our PPOR as tenants in common, majority in my name. If we build dual occupancy with strata subdivision, stay living in one and rent the other, and we want to transfer the title of the rental lot completely to my wife's name (so she gets all the rent, since she's not working), what impact would this have in terms of stamp duty, CGT, and any other tax (eg. GST)?

    For stamp duty, my percentage is 75%, and the rental lot would be about 40% of the total area, so would it just be based on 30% of the total current value? (assuming the PPOR lot would stay as tenants in common at the current percentages).

    Since the whole site is currently our PPOR, would there be any CGT from the transfer?

    And if the transfer was done after the subdivision but before any construction (if that's necessary and possible), would there be any GST issues?

    Thanks.

    GP
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Assuming it is in Sydney - duty on the value transferred. CGT on market rates less cost base and possibly GST as well
     
  3. GreatPig

    GreatPig Well-Known Member

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    Terry,

    Thanks. For CGT, would the cost base not be the current market value of that lot, hence no gain?

    GP
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The CGT MRE would only apply to the portion occupied. Timing is important. If transfer is made before changes to site then likely to be 100% exempt BUT...later main residence exemption will be vastly affected and even land tax. The land will have a cost base issue that needs to be understood so that CGT impacts are understood.

    I would consider this a great example of when personal advice is a must. No two issues are the same and your costs, plans etc need to consider that. A partition of title could also be explored but it wont change ownership entitlements - May save a bit of duty.

    The OP question also fails to address one key issue - Costs ?
    Your wife as owner would have a share of costs including interest and so her tax position may be neg geared !! She cant just earn income without a share of costs.
     
    Last edited: 8th Oct, 2015
  6. GreatPig

    GreatPig Well-Known Member

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    Paul,

    Thanks. This is certainly something I'll be talking to my accountant about more before proceeding. I have had some preliminary advice already, but the more I learn about the process, the more complicated it looks.

    That partition of title ruling seems to be saying that as long as we both end up with the same value after transfer as what we effectively had before, then there may be no duty. Given our current percentages are 75/25 though, I don't think there's much chance of one lot ending up worth only a third of the other.

    From a timing point of view, I assume the strata subdivision would have to be done first, since it's the ownership of the strata lots we're talking about, and the combined value of both lots should then be higher than the single property (at least once they have new buildings on them). I wonder though, if transfer was done after demolition but before any construction, would the property then be considered to be land value only for any duty or CGT considerations?

    Regarding costs, that wouldn't be an issue, as it wouldn't be negatively geared (unless for some odd reason we couldn't rent it at all). Though that does raise another question (better suited to a different section of the forum) as to the feasibility of getting a loan to build on just one of the lots without it getting mixed up with the other lot, given that both buildings would presumably be built at the same time by the same builder as a single project.

    GP
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You might want to look at the spousal transfer exemption now. Transfer title so yo end up 50/50 TIC. This could be exempt from duty while it is the main residence.

    Later if you transfer again there may be less duty depending on how it ends up.
     
  8. GreatPig

    GreatPig Well-Known Member

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    Thanks, Terry. I'll check it out.

    GP
     
  9. GreatPig

    GreatPig Well-Known Member

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    Still looking for info on spousal transfer in NSW, but did come across this ruling in relation to timing transfer before construction of buildings.

    GP
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  11. GreatPig

    GreatPig Well-Known Member

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    Thanks, Terry. And I just found a form for it here.

    GP