Removing Spouse From Title

[Gazz]

I own an investment property in Victoria with my wife as tenants in common; 99% ownership in my name, 1% ownership in my wifes name. For finance reasons i am considering 'purchasing' my wifes share so that the property is 100% owned in my name.

I was wondering how stamp duty and capital gains tax would be calculated for this transaction? The property was originally purchased for $340k and is currently worth $370k. Would the stamp duty payable be based on the value of just my wifes share of the property (i.e. 1% of $370k), and the capital gains tax on just my wifes share of the capital gain (i.e. 1% $30k)?

 

[Aaron_C]

Yes, that is correct.

 

[Terryw]

You may find that in VIC the transaction like this could be exempt from stamp duty - or just a nominal amount.

 

[Aaron_C]

Transferring a 1% interest is basically a nominal amount of tax paid anyway...

 

[Rolf Latham]

You may find that in VIC the transaction like this could be exempt from stamp duty - or just a nominal amount.

I dont know if I would avail myself of the love and devotion poption on a "commercial transaction".

I have had quite a few try to pull this off at the same time with a 50 % spousal sale to re gear proeprty for protection purposes, and their tax guys usually say dont be silly.

ta
rolf

 

[Aaron_C]

I dont know if I would avail myself of the love and devotion poption on a "commercial transaction".

I have had quite a few try to pull this off at the same time with a 50 % spousal sale to re gear proeprty for protection purposes, and their tax guys usually say dont be silly.

ta
rolf

Very frowned upon by the ATO esp with respect to fixed trusts

 

[Terryw]

I dont know if I would avail myself of the love and devotion poption on a "commercial transaction".

I have had quite a few try to pull this off at the same time with a 50 % spousal sale to re gear proeprty for protection purposes, and their tax guys usually say dont be silly.

ta
rolf

Hi Rolf

No love or affection is neeeded in Victoria (for the stamp duty exemption anyway),
http://www.austlii.edu.au/au/legis/vic/consol_act/da200093/s43.html

s43(3) No duty is chargeable under this Chapter in respect of a transfer of
dutiable property from one person to another person, or from two people to one
of them, or from one person to themselves and another person if-

(a) the people are spouses or domestic partners of each other; and

(b) no other person takes or is entitled to take an interest in the
property under the transfer.

 

[Terryw]

I have had quite a few try to pull this off at the same time with a 50 % spousal sale to re gear proeprty for protection purposes, and their tax guys usually say dont be silly.

ta
rolf

Re the tax side, see ATO ID 2001/79.

Issue

Whether interest on funds borrowed to acquire the share of the taxpayer's spouse (the spouse) in a property, to be kept for investment purposes is deductible.

Decision

The interest is deductible under section 8-1 to the extent that the borrowed funds are used for the purposes of producing assessable income.

Facts

The taxpayer and the taxpayer's spouse own a property as joint tenants. The taxpayer has obtained an independent valuation of the property. The taxpayer intends to borrow an amount of money equal to one half of the value of the property to fund the purchase of the spouse's half share in the property. After the acquisition of the spouse's half share the taxpayer intends to let the property to tenants.

Reasons For Decision

Interest is deductible under section 8-1 of the Income Tax Assessment Act 1997 to the extent that it is incurred in gaining or producing assessable income or in carrying on a business for that purpose, except to the extent that the expense is of a capital, private or domestic nature or incurred in gaining or producing exempt income.

Whether interest has been incurred in the course of producing assessable income generally depends on the use to which the borrowed funds have been put. The 'use' test, established in FC of T v Munro (1926) 38 CLR 153, is the basic test for the deductibility of interest, and looks at the application of the borrowed funds as the main criterion. The interest incurred will be deductible to the extent that the property is used to produce assessable income.

This doesn't mean the interest will be deductible in all cases however.