Best tax strategy when purchasing home from family member

Discussion in 'Accounting & Tax' started by drg86, 18th Apr, 2017.

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  1. drg86

    drg86 Well-Known Member

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    I have the opportunity to purchase from my Grandmother, she is downsizing and we would like to purchase her home as our new PPOR.

    What is the best way to set up the transfer/sale of the property? It will be purchased at market value so as to keep the rest of the family happy with the sale. We would like to know if there are options to reduce the tax payable or even if it can be gifted in a way? If gifted is stamp duty still payable?

    We will seek professional advice once we work it all out, but just want to start the thought process of strategies and educate myself.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Stamp duty is paid at market value (unless someone bumps her off and you inherit the property).

    How will the proceeds affect her pension?
    How will gifting affect her pension (if any)?
    Will she be liable for any capital gains (if it hasn't always been her ppor)
    Is it worth losing the CGT free status (if it is a pre-1985 asset)?
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Why is tax payable? Sounds like a main residence on both sides.

    IN any case you would be best to buy at market value under a contract of sale (and possibly borrow 100% depending on the circumstances).

    There are many legal implications for both parties - estate planning, stamp duty, land tax, asset protection, etc etc so seek legal advice.

    Consider that other family members may later raise objections so maintain evidence, use different lawyers to your GM and keep various family members involved.

    See also
    Tax Tip 153: CGT on Gifts and Under-market Value Transfers
     
  4. drg86

    drg86 Well-Known Member

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    No pension, self funded retiree.
    Always been her PPOR, built new in about 1990
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Keep in mind one strategy may be not to buy it...
     
  6. drg86

    drg86 Well-Known Member

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    Thanks Terry. Yes the only tax would be SD and when your up near a mil it pushes the swimming pool addition back a few years so would love to not pay it;)

    Not possible to borrow 100% in this new lending environment, well not on this place anyway.

    It is all at market value and yes will be having family members involved so no objections can be made.
     
  7. drg86

    drg86 Well-Known Member

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    Yes go on...
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This is something you need specific legal advice on, but you might just rent from grandma - at market, or free, and later on inherit the property if grandma predeceases you.

    You might also help grandma into a new property - perhaps lending her the money, or even going title (say10%) to qualify for the loan.

    It is a potentially dangerous strategy, but also potentially rewarding as there could be great savings on stamp duty, good asset protection, tax savings potentially etc etc
     
  9. neK

    neK Well-Known Member

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    Or put it to auction and be present to bid.

    There will always be one person who will be bitter and continue to bring it up.

    At least if you bought it at a public auction, everything is actually fair.
     
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  10. drg86

    drg86 Well-Known Member

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    Yes we have thought of the rent part but then I can't renovate it and risk losing it. She has been in and out of hospital this year so there's not a good outlook. At this stage the property would go to my mother and her siblings split 4 ways. So if things were to change so that we inherited it there is still the issue of paying out my aunties and uncles their share, complicated strategy.
     
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  11. drg86

    drg86 Well-Known Member

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    Been on the open market for 2 years...anyone could have bought it.
     
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There are some Centrelink strategies to consider. See Financial / Legal advice especially relating to the granny flat and life interest issues.
     
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  13. drg86

    drg86 Well-Known Member

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    I'm unsure what you're referring to? Where does Centrelink come into it, and what granny flat are you talking about?
     
  14. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Granny is selling her house so she will receive cash. Her Centrelink assets and income test are now triggered. Aged care and health care and a lot of other issues incl pensions. Gifting even. If she has assets that place her above these issues dont assume that is permanent - still consider how long this could affect her.

    DO NOT allow her to sell her house without factoring in aged care, DVA and centrelink issues. Its VERY common that she ends up with cash, loses a pension, is exposed to massive aged care placement fees and even income tax. Remember deeming applies !! This assumes she will earn 3.25% pa or $22,750 a year. Thats enough for tax and also affects pension. Some strategies like the GF strategy can avoid the issues.
     
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  15. drg86

    drg86 Well-Known Member

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    Ok thanks for that I will look into it a bit more to see what the best strategy is.

    Does this all still apply if she is very wealthy already? I'm talking multi millionaire that already earns 6 figures a year from investments etc. Never seen a cent from pension/centrelink as has too many assets/too much income.
     
  16. kierank

    kierank Well-Known Member

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    I believe one of the big issues that @Paul@PFI is alluding to is Aged Care. Sooner or later it will catch out most people, especially the Means Tested component of Aged Care costs that Centrelink calculates.

    For example, if a single person going into Aged Care owns a $1M PPOR, Centrelink applies an asset value of around $170K and no income for this asset.

    If this person sells this PPOR say for $1M (for simplicity, ignore selling costs, etc), then Centrelink counts the full $1M in cash as an asset and deems this cash to earn interest/income at 3.25% or $32,500 pa.

    The Means Tested component will be (a lot) higher in the second case.

    @drg86, I am not an accountant nor a financial planner so I can't give you financial advice. Plus the numbers given above are quoted from memory.

    Before you do anything, I would strongly recommend you look into what the impact of any decisions will have your grandmother Aged Care options.
     
    drg86 likes this.

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