Joint tenancy is old fashioned and dangerous
QUESTION: Please explain why you don’t like assets being held as joint tenants? As an accountant, I estimate that 80% of my clients own real estate as joint tenants.
ANSWER: Back before 1980, Death and Probate Duties existed. At that time it was popular for couples to hold assets as Joint Tenants. This meant that when one person died the survivor got the real estate, irrespective of what the Will said. The Joint Tenancy property didn’t go into the Will and therefore Probate Duties were avoided on that real estate.
Death and Probate Duties were abolished by 1981 in all Australian jurisdictions. In 1985, the Treasurer, Paul Keating introduced Capital Gains Tax (CGT). CGT works very differently to Death and Probate Duties. For example, the CGT regime doesn’t recognise Joint Tenancy. For the payment of CGT it treats all property as though it was Tenants in Common. If you own property as Tenants in Common (instead of as Joint Tenants) then when you die your interest in the Real Estate doesn’t go to the survivor. It goes into your Estate. This has additional benefits particularly if your Will has been drafted with tax effective 3-Generation Testamentary Trusts.
CGT punishes joint tenancy
From a tax point of view (only) holding any asset in Joint Tenancy is old fashioned and dangerous – this is particularly the case for investment real-estate. It is best to hold all investment real estate as Tenants in Common. We only practice in the area of tax. Accountants and advisers look at more than just your tax position.
It is generally prudent to own investment properties (these are properties that you may rent out, rather than your family home) as Tenants in Common. The cost to sever Joint Tenancy is generally under $2,200, including legal, government and mortgage fees.
For most family homes it probably does not matter. This is because most, but not all, family homes are CGT exempt. Check with your Accountant and Adviser.
For all other real estate, you suffer Capital Gains Tax. Therefore:
1. sever the joint tenancy
3. when you die your half of the property goes into the 3-Generation Testamentary Trust
4. you will pay no or much less CGT when you come to sell that half of the property
If you decide to purchase any real estate in the future then you are welcome to ring me, or any of the solicitors at this firm, to discuss whether your client should purchase that property as Tenants in Common or Joint Tenants.
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
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