Sale of IP, CGT 6 year rule, Ownership... what Tax?

Hi,

Wife and I jointly purchased a property in Mar 2006, which we lived in until we moved out in Mar 2009 when we bought a new home to live in. The property purchased in Mar 2006 then became an IP in Mar 2009.

At that time, I transferred the IP from joint ownership into my name only, using natural love and affection (Victoria). Wife stopped working in 2009 to have kids and has not worked since.

I have a couple questions.

1. I'm in the top tax bracket. My wife earns zero income. I may transfer the IP back into my wife's name for natural love and affection, at which point she may choose to sell it. Are there any tax lines being crossed should she do so?

2. I'm aware of the six year rule and that the IP may be able to be claimed as our PPOR. Our current home is not used for any income producing or other taxable purposes. Is it possible to sell the IP and claim CGT exemption under the 6-year rule?

3. If we do claim the 6 year exemption from CGT above, and in the future sell our current home, will CGT be payable on the increase in value of our current home over this 6-year period should we come to sell it in the future?

Both the IP and our current home are similar in value (say 750K, the IP might be worth up to 800K). The IP would have risen by $80-160K in value subject to auction price over this 6 years. Our home would have risen by maybe $100K in value over a similar period.

Any advice or strategy welcomed.

Cheers,

Sushi
 
HI, i was reading about this on the ATO site only yesteday. just type in 6 year rule in google gives you some good examples.

trying to understand it. all i could get out of it was..if the ATO see that you are claiming the 6 year rule for a sole reason to delay CGT, they will whip you.

BUt im sure you will get the answers from here..and ill be intersted to read responses...Have a person who is convinced that after 6 years, he can move back into it, and every 6 years keep changing his address. Rekons all you have to do is change your mail for 2 weeks to the address and qualify...hence it is soley to do to dodge his CGT...

but ill watch the answers on the thread...good one!
 
Why would your wife transfer the property for no consideration? Asset protection issues and interest is not deductible. There is no duty in Victoria for a transfer between spouses at full market value. A mistake!

1. A transfer of property results in CGT - you will be charged at market value on the transfer. If she immediately sells it there will be no capital gain for her.

2. The IP cannot be claimed as your PPOR because your wife transferred her share to you after you moved out. You cannot be absent from a property you never lived in after acquiring it. At best you may be able to claim your half as your former main residence

3. If you claimed another property then your property would be subject to CGT as a percentage of the time it was not the main residence divided by total time owned.

Sounds like you mucked up your strategy the first time so get proper advice before doing anything - who did you seek advice from the first time?
 
First question is whether your IP has ever been your main residence I.e. have you ever lives in it. If you havent then you cant apply the six year absence rule to a property that has never been your main residence.
 
Why would your wife transfer the property for no consideration? Asset protection issues and interest is not deductible. There is no duty in Victoria for a transfer between spouses at full market value. A mistake!

1. A transfer of property results in CGT - you will be charged at market value on the transfer. If she immediately sells it there will be no capital gain for her.

2. The IP cannot be claimed as your PPOR because your wife transferred her share to you after you moved out. You cannot be absent from a property you never lived in after acquiring it. At best you may be able to claim your half as your former main residence

3. If you claimed another property then your property would be subject to CGT as a percentage of the time it was not the main residence divided by total time owned.

Sounds like you mucked up your strategy the first time so get proper advice before doing anything - who did you seek advice from the first time?


Wife and I jointly purchased a property in Mar 2006, which we lived in until we moved out in Mar 2009 when we bought a new home to live in. The property purchased in Mar 2006 then became an IP in Mar 2009.

We lived in the IP for three years before moving out and renting it.

The original transfer from joint names to my name was to allow me to claim maximum tax benefits from renting the property out - as wife did not earn income from 2009 onwards. This was done for natural love and affection and no SD or CGT payable at that time. At that time I sought advice from a financial advisor and solicitor.

The ultimate aim I am seeking is to minimise CGT on the potential sale of the IP which may occur before the end of the 6 year period. This could be from either the application of the 6 year rule, or transferring the property to my wife's name under natural love and affection (no SD or CGT) for subsequent sale (as her marginal tax rate will be lower than mine).

If you have advice as to how to minimise CGT now then I'd welcome it.
 
Wife and I jointly purchased a property in Mar 2006, which we lived in until we moved out in Mar 2009 when we bought a new home to live in. The property purchased in Mar 2006 then became an IP in Mar 2009.

We lived in the IP for three years before moving out and renting it.

The original transfer from joint names to my name was to allow me to claim maximum tax benefits from renting the property out - as wife did not earn income from 2009 onwards. This was done for natural love and affection and no SD or CGT payable at that time. At that time I sought advice from a financial advisor and solicitor.

The ultimate aim I am seeking is to minimise CGT on the potential sale of the IP which may occur before the end of the 6 year period. This could be from either the application of the 6 year rule, or transferring the property to my wife's name under natural love and affection (no SD or CGT) for subsequent sale (as her marginal tax rate will be lower than mine).

If you have advice as to how to minimise CGT now then I'd welcome it.


You cannot claim the interest on the purchase from your wife as you did not borrow to buy her out. Only the interest on your 50% share would be deductible.

Assuming the transfer occured after you moved out = You cannot claim the main residence share on the 50% share you purchased from your wife as you did not live in this share of the property - the transfer occured after you moved out.

You also don't seem to understand a transfer from A to B is a CGT event whether there is payment or not.

To minimise CGT you should have kept things as they are. Now you will be potentially up for the whole CGT yourself. Just make sure you claim every expense for this property to reduce the cost base, including interest while living there.

You made a mistake in how you did this.
 
Ahhh - DIY taxpayer mistakes.

- High income earner acquired from wife...Deemed market value prevails over consideration when associates deal with each other
- No refinance of the loan ? Loss of deductions
- No main residence exemption on 50% since its a separate CGT asset with a separate CGT event and as Terry points out, no exemption
- Wife had already triggered her 50% main res exemption at time of transfer

Lesson in this for all those DIY taxpayers that you don't save money doing it yourself. The value of basic professional advice would have recommended a whole different strategy here

There may be some ways to minimise some CGT but it will also lead to a deferral of the problem so that when the existing home is sold a taxable gain results. Also identification of CGT costs for the cost base will be important. This may include non-deductible interest :) and some private ownership costs.

Well worth seeking advice.
 
Loans were restructured at the time we bought the new home. I borrowed more via a new single IP loan to buy out my wife's share of the IP at fair market value. The basis of this was to leave as much debt against the separate IP loan and in my name only. The property was independently valued at this time. The sale of this share from my wife to me was CGT exempt as it was our & her PPOR according to advice I received.

This was done under specific advice from a professional financial advisor and solicitor as I previously pointed out.

The reason for this approach was to maximise the deductible loan and consolidate it under my name for cash flow and tax purposes and not to minimise CGT at the future sale date, whatever that may have been. The fact that an opportunity exists for sale now close to the 6 year rule limit is triggered by a change in tenants and other investment considerations.

Perhaps the mistake I made was to rely on the financial advice I received.

Every expense is being claimed, as this was the purpose of the structure. If I had left things as they were, I would have lost 50% of my tax benefits.

The question I am asking relates to the six year rule on PPOR and how that may apply or benefit here. If I understood all the intricacies - I would not need to ask questions.

That I may retain the 50% PPOR 6 year rule benefit may assist me but the loss of My share of the CGT exemption on our current home is an issue.

If more information is needed to clarify my circumstances perhaps ask for it rather than assuming what may have occurred.

I'll seek professional advice.
 
OK.

Likely that the cap gain will be exempt BUT if you do you are making an election (choice) that YOUR investment prop will be CGT exempt and the main residence exemption on your actual home is lost for any period of overlap.

This can defer CGT liability but when you sell your present home it can bite.

Also complexities of spouse MR exemption must be understood. So she cant claim MR exemption on the home or any other property. If you claim it applies to BOTH of you. Its a one and one only choice that doesn't really care about who is on title.

Might be well worth running the two CGT options on paper to identify if you are deferring a small or large issue by claiming the MR exemption for your former home or you should use it for your actual home.
 
If you borrowed to buy the wife's share then the interest may be deductible - but you said the transfer was for love and affection - ie. no consideration.
 
Top