Sale/transfer of property into spouses name

[Kitkat]

I am after your kind expert advice. My accountant (not a property specialist) has advised that I sell/transfer my IP which is under my name only and fully paid off to my husband. Thereby he will take out a loan which will then be tax deductible. We will then pay off the mortgage on our PPOR. He has advised me that in Victoria that there is no stamp duty involved in such a sale???

IP would be worth $280 - 300 K
PPOR has a 185K mortgage

I didn't think that this actually possible as I would have done it in the first place, but I am happy to be wrong!

Any comments????

 

[duncan_m]

I am after your kind expert advice. My accountant (not a property specialist) has advised that I sell/transfer my IP which is under my name only and fully paid off to my husband. Thereby he will take out a loan which will then be tax deductible. We will then pay off the mortgage on our PPOR. He has advised me that in Victoria that there is no stamp duty involved in such a sale???

IP would be worth $280 - 300 K
PPOR has a 185K mortgage

I didn't think that this actually possible as I would have done it in the first place, but I am happy to be wrong!

Any comments????

A few points.

1. I suspect the Stamp Duty exemption ONLY applies the Family Home.. not an investment property.

2. A sale will trigger a Capital Gains Tax Event.

3. If you intend to sell it down the track and your husband is the higher income earner you capital gains tax bill at that time will be larger than if you retain ownership.

On the surface.. with the CGT Event and the Stamp Duty the numbers don't stack up. I suggest you seek better advice.. Personally.. I'd just borrow against the Paid Off IP and reinvest the funds in more income producing assets. Sure you'll still have a non-deductible $185K debt but at 7.5% the max tax saving you're going to make is around $6K per year which could translate to a 4-5yr (or more) payback time if you transfer ownership of the IP.. Thats 4-5 yrs that you could have been riding up the growth of other assets.

 

[geoffw]

My accountant (not a property specialist) has advised

Get an accountant who is!

that I sell/transfer my IP which is under my name only and fully paid off to my husband.

I'm with Duncan- I don't think the numbers stack up.

For your next property, investigate a trust- a hybid discretionary tusdt if it's negatively geared. You'll have a lot more flexibility as to income, as well as having better asset protection.

 

[Jamie]

Hi Kitkat,

Dunc is spot on. Just a couple of other points:

Transferring property between spouses is only exempt from duty when the transfer results in both parties ending up with an equal share in the property - this basically means you can add your husband to the title, but you cant remove yourself from it as well.

Also, if you were to borrow against the investment property and then use the funds to pay off your PPOR mortgage, the interest would not be deductible, as its the purpose of the funds that determines the deductibility. If you borrow to invest in further property or other investments, the interest is deductible - if you use it to may off your own house, then its not.

You should look into getting a new accountant better versed in property

Jamie.

 

[Mry]

A transfer to your spouse could still be considered. You would have to add up the Capital Gains Tax and refinance costs and compare them to the tax savings you would make. You would also have to hold on to the property for a while in order to recover the "transaction" costs through the tax savings to make it a worthwhile exercise.

Apparently in Victoria, a couple can transfer property between them stamp duty free. No conditions attached. I haven't done it before but you can check.

I would also suggest that purchasing it in a HDT would be better in giving more flexibility in distributing capital gains down the road. You would need a property savvy accountant to set this up though.

Also Jamie, borrowing money to buy a property off the wife is deductible as the money changes hands in return for property. If the wife happens to dump the proceeds of the loan into the PPOR afterwards, after the sale, that doesn't change the nature of the transaction. You would have to ensure that the purpose for the transaction was not tax savings (of course) but perhaps something like asset protection or .... something else as I'm sure the ATO would like to Part 4A someone who did this one day.

It would be good for you KitKat to sit down and do the figures to see what financial impact the decision would make for you.

 

[Kitkat]

Thanks for all the informative responses. This investment property was my PPOR until Feb, therefore I am guessing that there is no CGT??? Would that be right???

 

[duncan_m]

Thanks for all the informative responses. This investment property was my PPOR until Feb, therefore I am guessing that there is no CGT??? Would that be right???

Almost none.. you might be just outside the 6month rule? but even if you are, the capital gain for that short period will be negligible.. and provided the stamp duty is indeed exempt then that makes it a much more attractive proposition..