With the annual leave season starting in earnest over the next couple of weeks and many advisers taking either extended leave or alternatively taking the opportunity to catch up on things not progressed during the calendar year, last week’s post will be the final one until early 2021.
Similarly, the social media contributions by both the View and Matthew will also largely take a hiatus until the New Year as from today.
Thank you to all of those advisers who have read, and particularly those that have taken the time to provide feedback in relation to posts.
The 2021 edition of this book, containing all posts over the last year, edited to ensure every post is current, indexed and organised into chapters for each key area should be available early in 2021.
Very best wishes for Christmas and the New Year period.
P.S. Too cool seeing the latest release Barbie House at the local department a Christmas or 2 back.
As shown in this image, Lawyer Barbie (or was it Yoga Barbie or perhaps even Presidential Candidate Barbie) was passed out on the floor, unable to make it into her bed.
Totally capturing the spirit of Christmas for the young ones.
** For the trainspotters, name checking Russell Morris and his tune 'The Real Thing'
For many years in Australia, one of the most popular tax planning tools to manage death duties involved assets being held as joint tenants, instead of tenants in common.
Previous posts have the distinction between these two ownership structures. As usual, please contact me if you would like access to this content.
A surviving joint tenant receives the asset automatically (without anything passing via the deceased owner's estate). Joint tenancy ownership was often seen as the easiest way to delay the imposition of a death duty for as long as possible.
In jurisdictions that still have death duties, this ownership structure can provide a pathway to manage the tax impost.
Interestingly, under Australian law, the strategy can still provide planning opportunities.
In particular, where an asset is owned as joint tenants with a non-resident, the tax that would otherwise be paid by a non-resident on the death of a co-owner under capital gains tax (CGT) event K3 can potentially be avoided if the relevant asset is owned as a joint tenancy. This is because CGT event K3 is only triggered where assets actually pass via an estate.
It is important to note that in recent years the federal government moved to close this potential 'loophole'. At this stage however, no such changes have occurred.
** for the trainspotters, the title here is riffed from a Sonic Youth tune ‘Death to our friends’.
Last week’s post mentioned in passing the ability to unilaterally sever a joint tenancy.
Interestingly, there are in fact 6 ways to sever ownership of a property owned as joint tenants, namely:
an agreement to sever is reached between all parties (this is arguably the most common approach);
by mutual intention, as demonstrated by the conduct of the parties (relatively difficult to prove);
by court order;
due to the bankruptcy of a party (as explored in previous posts);
due to the homicide committed by one joint tenant against another (fortunately, relatively rare); and
a joint tenant unilaterally severs the tenancy.
It is also important to as mentioned last week, that where an asset owned on title records as joint tenants is a partnership asset it will be deemed to in fact be effectively owned as tenants in common. Previous posts have explored this aspect of the rules.
The ability to unilaterally sever a jointly owned property is enshrined in state-based legislation that permits any person who owns a property as a joint tenant to notify all other owners of their intention to sever the joint tenancy and for the registration of that severance to take place without the prior approval of the other owners.
If there are more than two owners of a property and only one owner wishes to sever the joint tenancy, the other owners will still hold their reduced interest in the property as joint tenants.
The legislative provisions in this regard generally require that the other joint tenants be notified by the Titles Office Registrar.
The Registrar may also require the full details of the other joint tenants and a statement by the party seeking to sever that they are unaware of any limitation on their right to do so.
For tax purposes, assets owned via a joint tenancy are deemed to be owned as tenants in common, in equal shares. This means that the conversion from one ownership mode to the other has no tax consequences. It also means that the death of a joint tenant owner will cause a tax event.
For example, on the death of one of two joint tenant owners of a pre-capital gains tax property, converting the ‘notional’ half share of the deceased owner into a post CGT asset (with a market value as at the date of death).
Similarly, there are stamp duty concessions for the conversion.
These conclusions in relation to the legal ability to convert the ownership structure without any tax or stamp duty consequences are however predicated on the basis that each owner will retain their deemed proportionate share in the asset.
In other words, if there are two owners, then they must each have a 50% share as tenants in common, if there are three owners, they must each have a one third share etc.
As usual, please contact me if you would like access to any of the additional content mentioned in this post.
