Selling an IP to pay down PPOR

[Rolf Latham]

Our solicitor was going to put " for true love and affection" on the transfer docs, I advised her we would prefer it to be a normal sale don't need to attract any attention to ourselves from the Ato or land titles office.

That was a wise move

WHile this sort of thing is Garden variety vanilla stuff for many brokers and solis, many also dont understand that you must have a commercial reason behind what you are doing aside from "saving on tax"

The non payment of stamps in this instance would also indicate that a "sale" had not taken place and youd be in deep doo doo if audited

ta
rolf

 

[wobbycarly]

From memory, "love and affection" transfer is not permitted in Qld. We did something similar a while ago (paid stamps, small amount of CGT) but it had to be a "real" sale, not a transfer.

 

[Brett IP]

From memory, "love and affection" transfer is not permitted in Qld. We did something similar a while ago (paid stamps, small amount of CGT) but it had to be a "real" sale, not a transfer.

"Love and affection" is permitted but it isnt recognised as a sale, it is the reasoning for a gift of ..% to a spouse.

 

[wobbycarly]

"Love and affection" is permitted but it isnt recognised as a sale, it is the reasoning for a gift of ..% to a spouse.

Hence to stay sweet with the ATO, it needs to be a sale?

 

[Brett IP]

Hence to stay sweet with the ATO, it needs to be a sale?

Well yeah, a sale has consideration (money transferred) which is the whole purpose, to be able to deduct this new loan.

 

[ozgal]

Hi there,

Just resurrecting this post as we are in the middle of a similar situation. Husband and I own current PPOR 50/50 (no mortgage). Want to change from joint ownership to husband's name only (spousal transfer).

Have just had offer accepted by vendor on new PPOR. Contract of Sale signed by vendor and me (wife). Putting new PPOR in my (wife's) name only to provide family home asset protection.

Husband wants to keep current PPOR as IP once we move to new PPOR (will have some negative gearing as he is bigger earner).

Want to be sure we do everything correctly regarding transfer of land paperwork.

Solicitor has put "love and affection" on Land Transfer paperwork but not sure if we also need to formally submit Contract of Sale as well? Broker has advised the bank do not need Contract of Sale in order for husband to get loan to buy me out.

I have been told that spousal transfer in Melbourne means sale or transfer between spouses, with no CGT or SD payable.

Can anyone clarify this for me? Any help greatly appreciated.

 

[Terry_w]

Hi there,

Just resurrecting this post as we are in the middle of a similar situation. Husband and I own current PPOR 50/50 (no mortgage). Want to change from joint ownership to husband's name only (spousal transfer).

Have just had offer accepted by vendor on new PPOR. Contract of Sale signed by vendor and me (wife). Putting new PPOR in my (wife's) name only to provide family home asset protection.

Husband wants to keep current PPOR as IP once we move to new PPOR (will have some negative gearing as he is bigger earner).

Want to be sure we do everything correctly regarding transfer of land paperwork.

Solicitor has put "love and affection" on Land Transfer paperwork but not sure if we also need to formally submit Contract of Sale as well? Broker has advised the bank do not need Contract of Sale in order for husband to get loan to buy me out.

I have been told that spousal transfer in Melbourne means sale or transfer between spouses in Melbourne, with no CGT or SD payable.

Can anyone clarify this for me? Any help greatly appreciated.

Yes, no duty in VIC
http://www.austlii.edu.au/au/legis/vic/consol_act/da200093/s43.html

CGT would apply though, unless it is otherwise exempt.

 

[ozgal]

Hi Terry,

Thanks so much for your reply. Much appreciated.

Can you clarify further regarding CGT.

We have lived in this house for 14 years purely as a PPOR and have not had any investment properites during this time.

I understand CGT may be payable but that is only once the property becomes an investment property, and only from that point forward. Is that correct?

I also believe that my husband needs to keep the property for at least 12 months after it is in his name. If he were to sell before then he would be liable for CGT not from when it was transferred to his name but from the time it was first purchased 14 years ago.

I'm still not sure about putting Love and Affection on the Land Transfer paperwork or whether we need to all fill out a Contract of Sale, to show property going from our joint names to husband's name only.

 

[ozgal]

Hi again Terry,

On reading the link a few more times, it would seem to me that the duty is one aspect and looks to be covered. That is good.

The other aspect is CGT. As we have always lived in the property as our PPOR and have not even had investment properties during this time, we would be CGT exempt as no CGT is payable on PPOR.

Once transfer takes place and the property is in husband's name (this will occur while we are still living in the house) the only change will be the ownership.

A few months later we will move into new PPOR and I believe we have six months before we have to nominate which property is our PPOR.

At that point we would nominate the new address as our PPOR. From that point onward the current PPOR would be liable for CGT.

We have obtained a Valuation from the Bank and will use that as proof of the value of the property at the time of transfer of ownership.

Hopefully that will cover everything to establish value and date that property ceases to be PPOR for CGT purposes.

Hopefully my understanding is correct.

I just need to know now whether to put Love and Affection on Land Transfer paperwork and whether we need to provide Contract of Sale, from joint ownership to ownership by husband only.

Again, many thanks.

 

[Terry_w]

Hi again Terry,

On reading the link a few more times, it would seem to me that the duty is one aspect and looks to be covered. That is good.

The other aspect is CGT. As we have always lived in the property as our PPOR and have not even had investment properties during this time, we would be CGT exempt as no CGT is payable on PPOR.

Once transfer takes place and the property is in husband's name (this will occur while we are still living in the house) the only change will be the ownership.

A few months later we will move into new PPOR and I believe we have six months before we have to nominate which property is our PPOR.

At that point we would nominate the new address as our PPOR. From that point onward the current PPOR would be liable for CGT.

We have obtained a Valuation from the Bank and will use that as proof of the value of the property at the time of transfer of ownership.

Hopefully that will cover everything to establish value and date that property ceases to be PPOR for CGT purposes.

Hopefully my understanding is correct.

I just need to know now whether to put Love and Affection on Land Transfer paperwork and whether we need to provide Contract of Sale, from joint ownership to ownership by husband only.

Again, many thanks.

Yes, probably no CGT issues if the property has been your main residence.

No requirement to nominate one as the main residence until the eventual sale.

Interest on borrowings for love and affection won't usually be deduction so you would need to sell to him for full market value. He would then borrow to buy you out.

You should really get some tax advice and legal assistance in doing this. You will need to do the conveyancing anyway.

 

[ozgal]

Hi Terry,

Yes, understand what you are saying.

The confusion is that I've been led to believe that transfer between spouses is also considered the same as selling. So, am just wanting to make sure that if I "sell" my 50% of property to husband that is currently jointed owned between husband and myself, using a contact of sale, will it still be exempt from stamp duty?

I am not getting straight answers from solicitor at present.

 

[Terry_w]

Hi Terry,

Yes, understand what you are saying.

The confusion is that I've been led to believe that transfer between spouses is also considered the same as selling. So, am just wanting to make sure that if I "sell" my 50% of property to husband that is currently jointed owned between husband and myself, using a contact of sale, will it still be exempt from stamp duty?

I am not getting straight answers from solicitor at present.

I think section 43 which I linked above is very clear. As long as you are married or in a domestic relationship then transfers between you and your spouse are exempt.

You can just ring the OSR and ask their opinion over the phone. Tell them you need to transfer it at market value and see what they say.

and 2 reasons to transfer at market value rather than gifting are
1. Tax deductibility (interest on money borrowed and gifted won't be deductible)
2. Bankruptcy clawbacks.

 

[ozgal]

Hi Terry,

Thanks again. Yes, that is what I am trying to do, i.e. transfer at market value. Thank you for saving us both from my long-winded explanations.

I really do appreciate your clarification and excellent suggestions.

Many thanks.

 

[Terry_w]

Hi Terry,

Thanks again. Yes, that is what I am trying to do, i.e. transfer at market value. Thank you for saving us both from my long-winded explanations.

I really do appreciate your clarification and excellent suggestions.

Many thanks.

Please keep us informed of your progress.

Make sure you get tax advice too as you don't want the deduction to be denied on the basis that you would not have entered into the transaction if it were not for the tax benefit.

You are very fortunate in VIC as this is not available in other states. There are huge opportunities for this strategy down there. In fact it would be a reason to buy in Victoria rather than in other states.

 

[ozgal]

Hi Terry,

Have contacted both SRO and Titles Office in Vic.

In Victoria SRO informs that any property (PPOR or Investment) can be transferred between spouses with no duties payable.

Two forms need to be filled out:
1.Transfer between married spouses statutory declaration (basic details to show the parties involved in the transfer)
2.T1 form - this form has the all important section "Consideration". This is where "Love and Affection" goes.

The SRO checks the information is correct and stamps the transfer as Exempt from stamp duty (I imagine it is the T1 Form that is stamped exempt).

A trip to the Titles Office is next, whereby the details of the transfer are checked and the changes lodged so the title can be changed to reflect new ownership.

When I called the Titles Office I was informed that Love and Affection is all that should be entered as the consideration.

I was given the impression that any monetary amounts would then possibly attract duties.

Will keep you posted once I've checked further with accountant.

 

[matto_]

Be careful with the "love and affection" piece. I think this has subsequent impacts on Tax Deductability with ATO.

Ozgal - would be great if you could keep us informed - I am working through a similar concept and having trouble finding good "advisors", accountant/lawyer/soliticitor.

 

[Terry_w]

Be careful with the "love and affection" piece. I think this has subsequent impacts on Tax Deductability with ATO.

Ozgal - would be great if you could keep us informed - I am working through a similar concept and having trouble finding good "advisors", accountant/lawyer/soliticitor.

I agree.

You cannot claim interest on money borrowed to 'gift' to someone.

 

[CHAOS]

What about paying down the PPOR, and setting up a LOC and borrowing to pay the CGT?

Hi Terry

We will soon be selling an IP to reduce PPOR debt.

Would we be able to use the equity in another IP to get a LOC to pay the CGT? And would the interest be deductible?

 

[Terry_w]

Hi Terry

We will soon be selling an IP to reduce PPOR debt.

Would we be able to use the equity in another IP to get a LOC to pay the CGT? And would the interest be deductible?

Thats a good question and I think the answer is no the interest would not be deductible, but I don't have anything to back this up off the top of my head..

 

[birchcorp]

There are several concerns that raise an immediate red flag here.... this scheme does not only test the boundaries of Part IVA but it has been posted publicly to show the real intention/ purpose of the sales.

Generally speaking, Part IVA will only apply to an arrangement
if the answer is yes to both of the following questions:
1 D id you obtain a tax benefit from a scheme – a benefit that
would not have been available if the scheme had not been
entered into?
2 Having regard to the eight matters specified in Part IVA would
it be objectively concluded that you or any other person
entered into or carried out the scheme, or any part of it, for
the sole or dominant purpose of obtaining the tax benefit?

There are many ways to skin a cat, and testing the boundaries without a ruling is not....