Is It Worth Transferring Assets Between Myself and My Partner?
Transferring assets between yourself and your partner is a common strategy in financial planning, particularly in Australia, where effective asset structuring can help minimise taxes, maximise government entitlements, and optimise investment outcomes. But whether it’s worth transferring assets depends on various factors, such as your income levels, asset types, long-term financial goals, and retirement plans. Let’s look at when and why asset transfers between partners might make sense and what you should keep in mind before making any changes.
Tax Minimisation
One of the main reasons people consider transferring assets is to reduce their overall tax burden. Here’s how asset transfers might help:
Capital Gains Tax (CGT): If you hold assets like shares or property, transferring them to a partner in a lower tax bracket might help reduce future CGT liabilities. For example, if one partner is in a lower tax bracket or isn’t working, shifting assets to their name could reduce the amount of CGT owed if you eventually sell the asset. However, it’s important to note that transferring assets may trigger a CGT event, meaning tax could be payable at the time of transfer.
Income Splitting: In households where one partner has significantly lower income or isn’t working, transferring income-generating assets (such as rental property or dividend-producing shares) can help shift taxable income to the lower-income partner. This strategy can reduce the couple’s total tax liability and increase after-tax income.
Superannuation and Retirement Planning
For couples approaching retirement, asset transfers can play a significant role in optimising superannuation balances and government entitlements:
Super Contributions and Caps: Each individual has a limit on how much can be contributed to superannuation annually. If one partner’s super balance is much higher, transferring assets or income to the lower-balance partner could allow for higher super contributions within legal limits, helping to build up their retirement savings.
Retirement Income Streams: Balancing assets between partners can also help you manage retirement income streams more efficiently, particularly if one partner is eligible for a pension or if you wish to qualify for the Age Pension. Structured asset transfers may allow a couple to meet the means test more easily and increase eligibility for certain benefits.
Protecting Assets and Planning for the Future
Asset transfers can help protect wealth and support future planning needs:
Estate Planning: Transferring assets as part of an estate plan can help align your estate distribution with your wishes. This can include balancing asset ownership to ensure a more equal inheritance for children or other beneficiaries.
Asset Protection: For families with one partner involved in high-risk professions or business ventures, it might be beneficial to transfer certain assets into the other partner’s name for asset protection. This can shield some family assets from potential liabilities or business-related risks.
Important Considerations Before Transferring Assets
While there are benefits, transferring assets comes with complexities, so it’s essential to understand the full picture before making changes:
Legal and Administrative Costs: Transferring assets can incur costs such as stamp duty, legal fees, and administration costs. For example, transferring a property title can lead to significant stamp duty, depending on your state and circumstances, which may outweigh the potential benefits.
Potential CGT Event: As mentioned, transferring certain assets may trigger a CGT event. In some cases, this can result in an immediate tax liability, which may be higher than anticipated.
Loss of Control: When you transfer assets, you are also giving up control and ownership of those assets. This may be fine in a stable relationship, but it’s crucial to consider future possibilities, such as separation or divorce, which could affect asset distribution.
Impact on Government Benefits: Transferring assets can affect government benefits or entitlements by changing your asset or income status. For instance, Centrelink assesses your combined assets and income when determining eligibility for benefits, so a transfer could impact entitlements.
Is an Asset Transfer Worth It for You?
Deciding whether to transfer assets between yourself and your partner requires careful consideration of both the short- and long-term impacts. While asset transfers can offer tax benefits, streamline superannuation contributions, and support your estate planning goals, they’re not suitable for everyone and should be tailored to each couple’s unique financial situation.
Consulting with a financial planner can help you weigh the benefits and potential risks, ensuring your asset strategy aligns with your long-term financial goals and offers the most value for your circumstances.
At GL Financial Planning, we’re here to help you optimise your asset structure, minimise tax, and protect your wealth for the future. Contact us today to explore your options!
General Advice
This information is intended to provide general advice only and does not take into account your objectives, financial situation or needs. Before acting on any of the information, you should consider its appropriateness, having regard to your own objectives, financial situation and needs. If you are considering acquiring or continuing to hold a particular financial product, you should obtain the Product Disclosure Statement (PDS) relating to the product and consider this before making any decision. The information in this document/article been prepared by Geelong Lifestyle Financial Planning Pty Ltd ACN 094 786 400 Corporate Authorised Representative of Bombora Advice Pty Ltd ABN 40 156 250 565 Australian Financial Services Licensee 439065