Property taxes are changing from the first of July, 2017.
The Victorian state government will close a property duty loophole between spouses who own investment properties from that date.
Transfers between partners will no longer be exempt from stamp duty, except for changes for the principal place of residence or following a relationship breakdown.
‘The idea of the transfer of investment properties between spouses is seeking to do pretty much one thing and that’s to avoid liability to taxation,’ state Treasurer, Mr Tim Pallas said to Sky News in April 2017.
‘We’re going to clamp down on that and it’s likely to bring in a sum in the vicinity of about $20 million a year to the state of Victoria.’ said Mr Pallas.
When you sell your investment property and if the value has increased over the period of ownership, you will be liable for Capital Gains Tax. Any capital gain you make will be added to your assessable income for the tax year and will dictate how much capital gains tax you end up paying. So, if a property is held in the name of the biggest earner in a family, they will end up paying a lot more Capital Gains Tax potentially.
If you want to change the beneficial ownership of an investment property prior to 30th of June, you need to act quickly. You may want to transfer some or all of the ownership into the name of the lowest income earner on the title if you are going to sell, or if you believe it could save you paying more capital gains tax when you do ultimately sell.
You need to note that you may trigger a capital gain payment if you change ownership now, however if you are going to pay it in the long run when you sell and cash flow allows, this still may be worth it. I urge you to speak to your accountant about these changes and to assess the pros and cons for you if you own an investment property with a spouse or life partner. This change has been hidden under the more prominent promotion of the removal of stamp duty for first home buyers sub $600,000 and removal of stamp duty concessions for off the plan investors, both of which have made headlines.
At Buyer Solutions we have a landlord who is about to sell an asset which will trigger capital gains tax on possibly a $700,000 or more capital gain made during ownership. She has been made redundant and is considering making changes to ownership to reduce CGT after 1st of July. This owner was not aware of these impending changes and appreciated being told about them when we were discussing the imminent sale. She is speaking to her accountant and financial planner to ascertain whether to change ownership fully into her name and to assess any benefits of this change.
I can refer anyone needing a good accountants advice, so shoot me a message if you would like a recommendation.
Please also note that from 2019, land tax will be revalued annually instead of biannually.
If you or your partner own an investment property, we suggest you seek financial advice on current tax changes in Victoria and do some tax planning prior to the end of June, 2017. End of financial year is nearly here, so you probably have lots to discuss anyway.
For independent advice on buying or selling real estate, contact Janet Spencer at Buyer Solutions +61 3 9816 8555 or email jspencer@buyersolutions.com.au