Spouse transfer finance options

[Hanno]

Hi all,
We want to turn our PPOR into IP. We've had the property for 13 years and owe 35K on the mortgage. We've just purchased another property as our intended PPOR and settlement is in 2 months. The current property is in my name only. Should we pay out the 35K, transfer the title to my wife's name only so she can take out an investment loan to pay me out for the current PPOR which then becomes her IP then I use the that money on the newly acquired PPOR. Is that the best (legal) strategy in this instance or has someone got a more tax effective scenario ?

Opinions are like belly-buttons, everyone's got one. I'll take all of them on board

Cheers

 

[jrc]

If the old PPOR is in both names don't pay out the $35000 (assuming all that money relates to the original purchase of the old PPOR. Your wife could borrow to buy your half and the $35000 which means the amount of the borrowings that would relate to gaining assess able income would be the money she borrows to pay you plus her half of the $35000

 

[Terry_w]

Hi all,
We want to turn our PPOR into IP. We've had the property for 13 years and owe 35K on the mortgage. We've just purchased another property as our intended PPOR and settlement is in 2 months. The current property is in my name only. Should we pay out the 35K, transfer the title to my wife's name only so she can take out an investment loan to pay me out for the current PPOR which then becomes her IP then I use the that money on the newly acquired PPOR. Is that the best (legal) strategy in this instance or has someone got a more tax effective scenario ?

Opinions are like belly-buttons, everyone's got one. I'll take all of them on board

Cheers

Seek legal and tax advice. If she doesn't buy your house for full market value there will be no tax benefit. Iff the property is in VIC it may be nominal stamp duty. There have been posters here before who have gone though the process and did it in a way that no interest is deductible at all.

think asset protection issues too.

 

[Hanno]

spouse transfer

Hi,
Thanks Terry and JRC. No the property is in my name only and I've arranged to have the 35K mortgage discharged later this month. Should my wife take an investment or home loan to buy the property from me to maximise the deductable interest? You've got me a little concerned Terry, what process is right for deductions? I 've spoken to a few people (mainly brokers) and they seem to be just pushing products not explaining the nuts and bolts which makes it difficult to formulate a repayment strategy. Asset protection is the driving force since I intend to go into business for myself shortly. I feel as if I've only scratched the surface of the financial services market and there are things you won't be told unless you ask the right questions.

 

[Terry_w]

Hi,
Thanks Terry and JRC. No the property is in my name only and I've arranged to have the 35K mortgage discharged later this month. Should my wife take an investment or home loan to buy the property from me to maximise the deductable interest? You've got me a little concerned Terry, what process is right for deductions? I 've spoken to a few people (mainly brokers) and they seem to be just pushing products not explaining the nuts and bolts which makes it difficult to formulate a repayment strategy. Asset protection is the driving force since I intend to go into business for myself shortly. I feel as if I've only scratched the surface of the financial services market and there are things you won't be told unless you ask the right questions.

These are legal questions a broker wouldn't know the answers to. You need to speak with a lawyer and a tax adviser (could be the lawyer or an acccountant).

Market transfer as if to a third party - which you wife is. Full market value, full contracts of sale, legally binding. Seek advice on whether Part IVA would apply so ATO could deny the deduction. I private ruling perhaps.

You are right to be worried as if you get it wrong there will be no deduction and no asset protection.

 

[Rolf Latham]

I feel as if I've only scratched the surface of the financial services market and there are things you won't be told unless you ask the right questions.

the right questions relate to things most people dont know that they dont know.

hence a solid fact find and a skilled adviser to work a "guided discovery process"

ta
rolf

 

[Greg Reid]

If you are going into business soon, asset protection may be critical. If your wife is going to be involved, then transferring it to her may not be the optimal solution. Consider a trust structure to buy the property at market value, it releases funds to you for your new PPOR and as it is your existing PPOR, no CGT. Downside full stamp duty. This would not be a trust you run your business through.

If your wife will not be involved in your new business, then you can transfer title to her for asset protection and with Victorian stamp duty laws, there would not be any cost.
Whether that is a better option than having her purchase 50% or even buying it 100% at market value may depend on borrowing capacity, respective MTR's and your own long term goals.

The second question relates to better after tax cost of borrowing on your existing PPOR to use as funds for your new PPOR or selling the existing PPOR (whether to your wife , a new trust or to the open market) which releases funds for your new PPOR. Do the numbers. You then consider in what structure you purchase your new PPOR, in your wife's name or a trust if asset protection is critical.

I would disagree with Terry a little, there are credit advisors who do know a little of tax law and structures, just as there are lawyers and accountants who know little. Best solution is to find a team and make sure that the advice received resonates with each. You are free to have whatever structures you want around you as long as the prime reason is not tax avoidance. If the prime reason is asset protection I do not think you will have an issue with the ATO.

 

[Terry_w]

Greg raises a good point about the wife being invovled in business and asset protection.

This is why you need specific legal advice - from a lawyer - as even if you transfer to the wife and she is not involved in the business there is a legal concept known as a constructive trust - if the tite is in her name and you are paying the loan then a court could deem there is a trustee relationship and that she holds all or maybe half of the property as trustee for yourself. This line of attack is often run in bankruptcy cases.

 

[tobe]

seems like all the opinions are the same? I concur by the way, but I would also suggest considering debt recycling rather than changing ownership.

Or just pull the pin and sell it, most people think their PPOR is a great investment, and it was, but once its rented it loses some value and people get funny when tenants mistreat their old 'home'.

Sell it, and buy 2 new investment properties structured right.

 

[Terry_w]

Whether spousal transfer is worth doing or not will depend on the figures and the circumstances. There will be costs involved for legal advice conveyancing loan exit and entry fees and hassle.

Also consider that you may not need to do it now but could do it in the future after there has been some more growth in the property. This.may help you get more cash out of it to pay down the new non deductible debt sooner. Factor in cut though.

and as Tobe says if may be worth considering selling out right and then buy a better performing property. This would produce stronger asset protection too

 

[Paul@PFI]

I would disagree with Terry a little, there are credit advisors who do know a little of tax law and structures, just as there are lawyers and accountants who know little. Best solution is to find a team and make sure that the advice received resonates with each.

"who know a little of tax law and structures"....A little bit of knowledge can be very very dangerous. Especially if they aren't educated in, experienced in and qualified to practice in the field of tax, law or finance (AFSL) or Credit services (lending).

I have seen many people think they can setup a SMSF and they get 50% of the way along then find that the property they discussed with their broker to be acquired by a SMSF is actually owned by a related party (their wife?). The shipe hits the fan when 1 min into a meeting I tell them its prohibited and nothing can make it right. Its always the little things that matter.

I agree wholeheartedly on finding a team...eg the situation where an accountant can propose a basic structure and recommend supporting legal advice from a colleague, referal etc. Problem with that can be a bit like "nudge nudge wink wink" ---they then dont get the advice...This happens heaps.

Best of all I like working with good brokers, lawyers etc and get the clients deal done. Just wrapping up a client IP acquisition in QLD and have found Shahin from Elite Property Finance and Darryl Richards from Hui Law is working real well. Big pat on the back for a team of professionals in their respective areas all getting client across the line from SMSF setup through to IP settlement under LRBF.

If each party to the deal confines their services to what they know only, each gives the best and keep others informed its a win-win.

Terry's combined qualifications are a good example of seeing a team - Just happens its one stop.

 

[Terry_w]

Its more than tax law that is needed. The adviser needs knowledge of Bankruptcy law
Corporations law
conveyancing acts
succession
asset protection
litigation
and even family law
etc

as an example, what could happen if you transfer title to your wife, you lend her the deposit and then both die in an accident. Who died first cannot be determined so the succession act has the oldest of you considered dying first. She inherits everything and leaves it via her will - to her sister, your children from your first marriage miss out completely. The executor of your estate is legally obliged to sue the executor of her estate to get back the money you lent her because you didnt realise this would be an issue...