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My wife and I are about to go through an (as yet) amicable separation.
We have owned our current family home since late 2018; it is 99% in my name, 1% in my wife’s – done this way originally in case we ever chose to rent it out. We never have rented it or received any earnings from it.
We have decided for better or worse to jointly purchase a second house for me to move into as a primary residence close by, whilst my wife retains the current home as her primary residence. We are both on both mortgages, although I am paying the lions share.
I will move into the new home as soon as practical (within a few weeks of purchase), and have no intention of renting it for any period or making earnings from it.
In a couple of years time we intend to transfer the new property into my name, and the original family home into her name when we do a settlement agreement.
My question is: will either of us be liable to pay any CGT on either property either at the point of transfer or at the point of a hypothetical sale later? And if so, assuming we use consent orders or another acceptable mechanism that meets the CGT rollover rules, will we avoid being hit with CGT completely or should we take this into account? The example on the ATO website is the opposite scenario and not quite clear to me.
Answer
I think there is a lot of good reasons to do the settlement sooner than later. Not just from experience, while it is amicable but so that you can start covering your respective homes fully with your main residence exemption.
A couple are only entitled to one main residence exemption between them. Now that you are living separately you are entitled to one main residence each. You must have lived in a property to start to cover it with your main residence exemption. To be specific you or your spouse or children under 18 must have lived there. Now if you are going to get a main residence exemption each then you are not each other’s spouse. I think it is going to be more beneficial to have two main residence exemptions.
The rollover on marriage breakdown is compulsory but if you transfer title before settlement then it will not apply.
What the rollover does is say that the receiving spouse steps into the shoes of the transferring spouse and is considered to have used the property the way they did. You will probably find that there is no stamp duty on transfer on marriage breakdown but I don’t know how your state would define that. Well worth finding out if you choose to transfer before final settlement.
So it would seem to me if the rollover applies your wife will receive a property that up to the day you moved out be fully covered by your main residence exemption. After that it is a matter of where you decide to leave your main residence exemption but her 1% will continue to be protected. So you can see any mucking about on the transfer will put some CGT on “her” house unless you choose not to cover the one you are in now. It is the record keeping too. Alternatively, if you transfer now there will be no CGT as covered by your main residence even if not part of settlement so rollover not triggered. You can choose to cover two properties with your main residence exemption for up to 6 months before the sale of the first property.
As for the house you are in, your wife is not going to be able to cover her half with her main residence exemption all the rollover will achieve is you having the CGT exposure for the time she owned half. Maybe the solicitor could set up a document saying she holds it in trust for you or enter into a contract to sell it to you at a specific time or just right now before settlement see if the bank will let you change the name on the title. I can’t see any benefit in joint ownership if she needs protection she could take a caveat over the property.
