Transfer 1/2 share of rental property to wife for CGT savings?

[bigdog]

I have a rental property 100% owned by myself.
-- my wife and myself are both retired
-- I will be 65 in July this year when I can no longer make contributions into my super account.

I am looking at transferring half the onwership to my wife where I will realize a capital gain with tax payable on the half transferred to my wife.

Using the following as an example:
1. With sole onwership the lets say $300,000 is total capital gain where half the gain $150,000 will be taxed.

2. I transfer half the property to my wife and the taxable gain will be $75,000 (being half the $150,000)

3. I make Concessional Contribution (tax deductible) of $50,000 into my super account which can be offset against the capital gain upon the transfer of half.

4. The net income taxble will be $25,000 (being my half share of capital gain $75,000 less my deductible Concessional Contribution of $50,000).

When we eventually sell the property, the capital gain will be based upon the valuation used for the transfer to the wife and the capital gain will be 50% each and will attract lower tax rates!

Did I get the above right?

How should the valuation of the rental property calculated?

Has anyone been down this track and can share advice or experiences?

I do plan to seek professional advice on this matter.

 

[jbocker]

Sounds OK in theory Bigdog. I often discuss with the accountant ideas like this, and he keeps annoying me with statements similar to this "But I fear the taxman may view this as deliberate tax avoidance".
"There is consideration given to the intent of the transfer" he adds. I am no authority on the matter and agree that you should certainly seek professional guidance. Your case could be quite legitimate.
In my mind I could see that there would be circumstances which the transfer is perfectly acceptable (to me at least but Iam not the taxman). One I could think of, you married you wife after you had already purchased the property, and now wish to share it with her on title, for her future security, in case something should happen to you. (Hmm sounds like a good reason TODAY, even if you were already married at the time of purchase). Be armed with your 'intent' when you see the advisor.

I would think that the valuation would need to be done by professional valuers.

I assume that you have the money aside for the CGT (if the transfer is done on paper) or the wife is actually going to give the 1/2 share in cash from which to pay the CGT.

Also be aware and check that the amount of Concessional Contribution allowed changes this year or the next couple of years (I think down to $25 000 max).

 

[bellenuit]

Apart from the deliberate tax avoidance issue that jbocker raised, are there other costs involved that you haven't considered? Is stamp duty applicable for example?

 

[Investor82]

I believe (though may be mistaken) that there are some circumstances where you can transfer property to your better half without incuring S/D and other forms of taxes.

But destpite this others are right in saying that it may be viewed as a direct tax avoidence measure.
If you are turning 65, have you considered transfering the property to your superfund? It may be a more effective alternative?

Another consideration might be to use the money you would be spending on CGT, Stamp duty, transfer etc - on purchasing another investment property (maybe soley in her name?). Or investing it in shares etc.

Spending money to 'save' on tax sounds a bit backwards to me

 

[Julia]

If you'd owned the property in the name of your super fund you could simply delay selling or transferring it until you move into the pension phase of the SF at which stage no tax is payable.

The Fund is just converted from Accumulation phase to Pension phase, an allocated pension started, and thereafter no tax is payable.

 

[Krusty the Klown]

Nice try Bigdog!

Transfer of a CGT asset to another party constitutes disposal and is therefore a CGT event even if you give it away. Even between spouses. I have been asked this question before and have not been able to find any information to the contrary.

Therefore you will be liable for CGT at market value (of the portion you dispose of) in the tax year that the transfer to your spouse takes place.

The ATO makes its business to anticipate possible ways to reduce their cut!!!

Stamp duties are payable at market value on transfer of title.

 

[Tysonboss1]

maybe hire your wife as a consultant and have her charge you a $50,000 fee to assist you in selling the property, there by transfering $50,000 of the profit to her tax return at a lower rate.