Monday 8 July 2013

Tax and family law

Despite all the lawyer jokes out there - and trust me I've heard them all ... “It was about as even a divorce settlement as you could hope for. Each lawyer got $50,000” – my experience is that nobody benefits from a long Court battle.

However, I can also tell you that an informal property division (for example, where one person keeps living in the house and the other person gets the investment property - without a legal agreement or Court Order) is one of the quickest and simplest ways to ensure that you may each end up paying a lot of money to the government.

You see, the law grants exemptions for stamp duty and rollover relief for capital gains tax on property transfers in circumstances of family law property division. This means that no stamp duty will be payable on the transfer of property between spouses (including de facto spouses) and any CGT applicable to investment property can be paid only when the party receiving the property disposes of it in the future - IF formal arrangements are made about that property division.
 
However, it is not necessary to go to Court for Orders regarding your property division because these savings are available to parties finalising their property division by Consent or Agreement. This means that you can have an amicable and cost effective resolution of your property division and save money on tax.
 
So what kind of savings are we talking about?  One of the most common examples is:
 
A couple transfer their home into the wife’s name and she pays stamp duty of $13,500.   Some years down the track they sell the investment property and they co-sign the contract for sale as they never transferred title of that property to the husband – in an attempt to avoid paying stamp duty. June 30 rolls around and they now each owe $10,000 in capital gains tax.
 
If the parties had entered into a formal agreement the wife could have saved $13,500 in stamp duty and $10,000 in CGT and the husband could have had CGT roll-over relief of $23,500 rather than having to pay $10,000 in CGT.
 
The rules, bring rules, are not always straight forward (and I always recommend that you get expert tax advice as well) but to avoid gifting all that money away contact us to discuss your property division - I might just be able to save you thousands.

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