Legal Tip 95: Spousal Transfers and Some of the Legal Issues

There is a very effective tax strategy whereby one owner of a property sells that property to their spouse. This can allow greater tax deductions, but there are various legal issues involved.

Stamp duty laws are state based and each state has different treatments for spousal transfers in terms of stamp duty. Some states such as VIC allow a transfer between spouses to be done with no duty at all, on both investment and main residences. Other states such as NSW will only allow an exemption if the property is a main residence and both spouses will end up owning as Tenants in Common 50/50 or Joint Tenants. Similar in QLD, but there will be duty if the transfer is done for consideration - so only gifts are exempt in QLD.

Consideration - if the purchaser wants to claim the interest the transfer should be done at market value. There can be no interest claimed on loans to acquire gifts.

There are also asset protection issues. Any transfer should be done at market value to improve asset protection. Under market value transfers are more at risk of attack.

Estate planning - changing ownership means a change in control. Spouse A owns a property so is in control, but if A transfers to Spouse B then B could sell, mortgage or give the property away without A’s knowledge or consent.

Death - if you don’t own a property you cannot will it at death. If your spouse owns it then there is a chance they may leave the property to someone else, or there will is attacked. This is especially the case where there are children from other relationships, ex-spouses etc.

Capacity - what if you transfer the property to your spouse and she loses capacity but her mother is nominated as enduring power of attorney - she will control the property, subject to her fiduciary duties as Attorney.

Control - what was once yours is now theirs!


Keywords: Spousal Transfer, Asset Protection, Estate Planning

 

So does this mean in Victoria, if you purchase a negatively geared property, you can purchase in the highest income earners name and at the point it becomes positively geared transfer the property into the non-working spouses name without incurring duty?

 

What if (in NSW), a block of land was purchased as TIC 99:1 and subdivided with a house built on each.....

Both new titles will also be 99:1 but both can't be transferred 50:50 in the future - only one could be, so long as it was a primary residence?

 

Yes. No stamp duty in Vic on transfers between spouses - whether owner occupied or investment. But such a transfer will be a CGT event.

 

In NSW duty is exempt only if it is a main residence and both spouses will be owners as JT or TIC 50/50.

In your scenario would both houses qualify as the PPOR? Prob not.
You could transfer before sub-division perhaps.

 

Will the following trigger CGT event or stamp duty in NSW?
1. I have an IP under my name
2. subdivide it
3. keep the old house as an IP
4. build a new house at the new lot
5. make it PPOR
6. transfer 50% ownership of the new house to my spouse

 

@Terry_w , could GST also apply in some circumstances? e.g. a new residential dwelling or subdivided land?

 

Yes. Change of title = CGT event.
Full exemption won't apply on new lot if other lot was main residence, both can't be. But there may be a partial exemption.

GST could apply to the sale of the old property because new land. It could also apply to the new property if sold within 5 years.

 

Does that mean if the transfer 50% of title to spouse happens immediately after subdivision (and before the construction), there will be no capital gain?

Or should I take it as [example only]
big land with property = 1m
after subdivision
lot 1 = 600k
lot 2 = 600k

so lot 2 should be treated as having 600k - (1m/2)= 600k - 500k = 100k capital gain when I transfer 50% to spouse immediately after subdivision

 

No.
Sub-division doesn't trigger CGT, but transfer of title to different names does.

 

I understand.

[example only]
1. big land with property = 1m

2. after subdivision
lot 1 = 600k
lot 2 = 600k
CGT event: NO

3. transfer 50% to spouse
CGT event: YES
What is the cost base for lot 2 for CG purpose? Is it 600k?

 

No.

 

Just found the following
https://www.ato.gov.au/General/Capi...eal-estate/Subdividing-and-amalgamating-land/

Cost base calculation for the new lot is not that straightforward

 

You will have to take into account the various costs associated with the project, including a portion of the land cost.

 

How about applying these scenarios for PPOR in VIC for CGT & cost base...Assume spouse A owns PPOR in full...

1. Spouse A transfer/sell PPOR to spouse B. Does spouse A need to pay CGT?
2. Spouse A transfer/sell PPOR to spouse B. does it resets the cost base (as per Market value on date of transfer) for spouse B
   
3. Spouse B keeps the property for 12 months as rental (after transfer from spouse A, while both living in new PPOR) is spouse B eligible for 50% CGT discount and I assume cost base reset in 2) will be used for CGT calculation

 

1. CGT event, but main residence exemption may apply
2. Yes
3. Yes

 

means no CGT payable by spouse A coz its PPOR

 

So did I

 

One of the most common CGT assumptions made by taxpayers is assume that because they lived in a house at some time its automatically exempt from CGT for the whole period.
- Move in after acquisition
- Overlapping PPOR periods
- Prorata periods of non-residency
- Non-residency
- Spouse / partner with a different home in same periods and a choice made
- Divorce issues where OTHER person has a different PPOR when separated. etc etc

If A sells a % to B there is a likelihood of the above issues being an impact and that B may own other property that may be otherwise exempt and its very important to approach with care.

As tax advisers we generally have to ask all the right questions to ensure our clients get it right so they don't come back and blame us.

 

What about PPOR or IP owned as joint tenants? If spouse A wants to take his name off the title leaving spouse B on the title?

How do this title transfers interrelate with finance? How does that work and what costs are involved on that side of things?