There are many occasions and reasons that you may decide to transfer the ownership of your property. It’s important to consider both the financial and legal obligations and implications in these cases, to avoid any nasty surprises down the track. With the upcoming Federal election in Australia, earmarked for May 2019, and the proposed tax changes by the Labor Party, many Australian property investors are closely considering their options to prepare.
This week we explore some of the more common cases where you may consider transferring property ownership as well as the potential implications of such an event.
- Divorce or relationship breakdown
One of the most common scenarios whereby the ownership of a property will be transferred is in the event of a divorce of breakdown of a relationship with your significant other. In many cases, one partner may decide to ‘buy out’ the other at an agreed upon market price, and therefore the ownership of the property would transfer to that individual. It’s therefore important to consider whether this property is a primary residence or if it’s an investment property.
In the event that the property is your own home, then this would typically be exempt from capital gains tax anyway, and with an order from the Family Court or a Binding Financial Agreement (BFA), the stamp duty fees in many cases would be waived. If it’s an investment property however, a capital gains tax (CGT) relief is typically provided, meaning that no tax would be payable at the time of the transfer, but the transferee would inherit the original cost base from the transferor and pay tax on this gain at the eventual point of sale.
As you can see, it’s vital here to recognise that the financial implications can be quite different to some other scenarios, and we would certainly suggest seeking specialist advice in these cases.
- Transfer to a family member
The second scenario here is the transfer of a property to a family member. This may, for example, be a transfer to your child or children by way of a gift or sale. This may also be part of your estate planning and the property may be transferred to your beneficiaries by way of your estate. There can be quite different tax treatments here depending on your situation and the overall scenario, so it’s important to seek sound tax advice before making any decisions on this front.
The transfer of the property to another family member may also be the result of one of the property owners passing and ownership transferring to the surviving owner. It’s important to recognise here the difference between owning the property as Joint Tenants, whereby the ownership automatically transfers to the surviving owner, and Tenants in Common, whereby specific ownership interests can be specified and ownership interests can be transferred independently.
- Tax planning
This is a wide category and could be the result of many scenarios, such as a property owner deciding to transfer the property into a family trust for asset protection or wealth distribution purposes. It could also be the result of capital gains tax planning by transferring ownership currently. Property can be an excellent estate planning tool when executed correctly, so it’s important to seek sound advice here.
- Asset protection
Given the potential liability that arises from owning and running your own company in Australia, many individuals will opt not to wholly own their family home or investment property, or not have a share at all to ensure that their personal assets are protected. This scenario could give rise to the property being transferred into the name of the business owner’s spouse, family member or other entity to ensure that it’s protected.
There are a wide range of scenarios whereby the ownership of a property may be transferred, and this can have a significant impact on the overall financial outcome. There will generally be costs and potential tax implications including stamp duty, mortgage transfer fees, legal fees for the overall conveyancing process and other costs. It’s also important to consider any capital gains tax, income tax, estate duties or otherwise as part of your transfer strategy.
Ensure that you seek appropriate advice, and consider your options when it comes to property transfer. Also be mindful of the tax anti-avoidance rules in Australia, that stipulate you can’t simply transfer the ownership of your property to benefit your tax position.
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