Transferring Property Tax Free for "Love and Affection"

Transferring property between spouses in is a strategy often employed for asset protection, particularly by individuals in high-risk professions. For example, company directors or business owners may transfer assets to their spouse to shield them from potential creditors. While this approach can offer certain protections, it is essential to understand the legal and tax implications involved.​

Reasons for Transferring Property to a Spouse

Individuals engaged in professions with higher exposure to financial liability, such as company directors, business owners, or professionals, may consider transferring property to their spouse as a precautionary measure. The primary motivation is to protect the family home or other significant assets from potential claims by creditors. By placing the property in the name of the "low-risk" spouse, the asset may be shielded from business-related financial risks. This strategy is particularly common before embarking on new business ventures or entering industries with inherent financial uncertainties.​

Stamp Duty Considerations

In Western Australia, property transfers between spouses or de facto partners typically qualify for nominal stamp duty.

Capital Gains Tax Implications

Regarding Capital Gains Tax (CGT), if the property being transferred is the main residence of the spouses, the transfer may be exempt from CGT under the main residence exemption. The Australian Taxation Office (ATO) provides that if the property was the main residence of either spouse, a full or partial exemption from CGT may apply upon disposal.​

Clawback Provisions in Western Australia

While transferring property to a spouse can be beneficial for asset protection, it is crucial to be aware of clawback provisions that may apply under certain circumstances. These provisions allow courts to reverse property transfers if they are deemed to have been made with the intent to defeat creditors or if they render the transferor insolvent. For instance, under the Bankruptcy Act 1966 (Cth), a transfer of property can be voided if it is found to be an undervalued transaction made within a certain period before bankruptcy. This means that if a person transfers property to their spouse and subsequently becomes bankrupt, the trustee in bankruptcy may seek to have that transfer reversed to satisfy creditor claims.​

Family Law Considerations

It is important to note that transferring property to a spouse does not remove the asset from consideration in the event of a relationship breakdown. Under the Family Law Act 1975 (Cth), the Family Court has the authority to make orders dividing property between separated spouses, regardless of whose name the property is under. The Court follows a structured process to ensure a just and equitable division,

Conclusion

Transferring property into the name of the "low-risk spouse" is one of many estate planning and asset protection strategies we recommend to our small business clients and private family groups. For a comprehensive review of your your family's risk exposure, and to receive actionable steps to mitigate potential loss including safeguarding your wealth for generations to come, please contact us on 1300 022 267.