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Gifting Real Estate: Generosity Can Be Taxing

Most people at some point in their adult lives, will think about transferring real estate to a family member. 

There are a range of reasons why a property transfer could be something to consider, aside from the obvious, which is as a gift from an elderly parent or close relative to an adult child or niece or nephew. For example, it could be part of an asset protection strategy, as part of a business plan. Or possibly part of a tax minimisation strategy. 

The risks when transferring property to family

But it’s important to understand a couple of key facts. 

Firstly, depending on the value of the property being transferred, there could be a capital gains tax bill. You can’t nominate a lower value, say $20, and transfer a property worth significantly more than that in the hope of avoiding other tax issues. The ATO will assess the taxes due on the market value of the property, not on your estimation of the value of the property. 

Secondly, if elderly parents are transferring the property to a child, this could have implications for their pension payments. Centrelink will assess the transfer as income generated from the sale of an asset and, once again, like the ATO, will assess it at fair market value. This could result in the elderly parents losing their pension payments. 

Thirdly, transfer duty (also known more commonly as stamp duty) is not avoided just because you’re transferring to a relative, although, in some circumstances there are exemptions. Many people assume that stamp duty is paid once, but they don’t realise that stamp duty is paid every time the title deed is transferred – even if it is transferred to a relative. 

Stamp duty is a state tax so it is important to check with an advisor who can give you tailored advice that suits your circumstances and apply the legislation according to the state you live in, or, more precisely, the state where the property being transferred is located.  

For example, in Queensland, you don’t pay duty on the transfer of an interest in your home to your spouse if the transfer is a gift, and also if after the transfer you and your spouse will own the entire home as joint tenants or tenants in common in equal shares, and if the home will be your principal place of residence. It’s similar in New South Wales. However, these are very specific circumstances. Also, in the event of the marriage or de facto relationship breaking up some exemptions may apply, but in some circumstances stamp duty will still be payable.  

In Victoria, however, you get 1 opportunity in your lifetime to “gift” a property and then aside from that, you pay full stamp duty on the property value, not just the “transfer” value.

Finally, if there is a mortgage that remains over the property. The person to whom it is being transferred will likely need to be approved by the lending institution that holds the mortgage. This is an important point to consider before you commence with any transfer arrangements.

Ways to minimise tax obligations

There are ways to avoid taxes, or, minimise them. In particular, CGT can be avoided if the home is the seller’s principal place of residence. Equally, if the home was purchased before September 20, 1985 there will be no CGT applied. There may also be some concessions if the property was used to run a small business. Alternatively, if you hold the property for 12 months as an investment, a 50 per cent CGT discount is applied.  

There is a temporary absence rule that means if you move out of your property for up to six years, say, to rent it out, it can still be considered your primary place of residence (provided it was your primary residence for at least 12 months before you moved out).

All these, and any others, should be discussed with your professional tax adviser or financial planner before taking any action.

Looking at the whole picture

While it may seem like a good idea at the time, transferring real estate to a family member may sometimes trigger issues. Advice from finance and legal professionals is essential. They will be able to direct you on the best way to achieve your goals without increasing complications and costs. 

Tailored advice that is appropriate to your individual circumstances is crucial, so remember, the information here is a guide only.

Andrew Mirams

Andrew Mirams

Andrew Mirams is the Managing Director of Intuitive Finance and is a highly qualified mortgage advisor who holds dual diplomas in Financial Planning (Financial Services) and Banking and Finance (Mortgage Broking). Andrew’s expertise covers all aspects of lending for a diverse range of applications – from first home buyer loans or property upgrader loans, property investor loans, expatriates and loans for self-employed. With almost 30 years of experience, Andrew has been acknowledged by the mortgage industry as one of its best performers with multiple awards including regularly featuring in both the top 100 mortgage brokers list and Top 50 Elite business writers. Andrew was voted Victoria's favourite Mortgage Broker at the 2015 Investors Choice Awards, and won again for the same category at the 2017 Better Business Awards. The team at Intuitive Finance has also figured prominently by winning the 2016 "Best Independent Office (<5 brokers)" and "Best customer Service" Awards, and more recently at the 2017 MFAA National Awards, they also took out the "Best Customer Service" Award, a recognition which speaks for itself! Visit Intuitive Finance for more information.
Andrew Mirams

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