Changing ownership structure
Question from Jessica updated on 1st July 2020:
My husband and I currently own investment properties jointly. We are looking to change the ownership structure to “tenants in common” (for the purpose of our wills). Would the change to tenants in common trigger the bright line test and, therefore, a tax liability?
Our expert Matthew Gilligan responded:
As with many questions in tax, what appears to be a simple question on the face of it does not necessarily have a simple answer. Instinct suggests that the simple transformation of ownership from joint ownership into tenants in common ownership should not trigger any consequences under the bright-line rule.
We can be reasonably confident that there is no disposal, but where matters are not necessarily so clear is whether there is a restart of the bright-line clock. If the property were under a formal partnership, there is potential for there to be a deemed dissolution and disposal for bright-line purposes, but joint ownership generally between spouses is not regarded as a partnership.
The catch here is that the bright-line rule starts from the date that the instrument to transfer the land to the person is registered under the Land Transfer Act. This could mean that the bright-line clock is reset for a fresh five-year period. Philosophically I have trouble with this conclusion because I think that the right answer is that there is no disposal under the bright-line rule and no acquisition and restart of the bright-line clock, but the legislation does not clearly cater for this situation. You should consider getting professional advice to support your position if you are concerned.
Matthew heads GRA's specialist property and asset planning division. He helps clients create optimal tax structures and build wealth through property. He has an extensive buy-to-hold property portfolio, is currently involved in over a dozen developments, and is author of two books - Property 101 and Tax Structures 101.