Loan Tip: Related Party Transfers and Bank Loans

Discussion in 'Loans & Mortgage Brokers' started by Terry_w, 6th Sep, 2023.

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  1. Terry_w

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

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    Loan Tip: Related Party Transfers and Bank Loans


    Transferring title to a related party will usually require new loans to be obtained by the new borrower. This is because the owner of the property will usually need to give a mortgage over the property for the new loan and title cannot be transferred with an existing mortgage on it (well it could but the mortgagee wouldn’t allow it).


    Example

    Homer wants to transfer a property that he and Marge own to a company they have set up. The property is mortgaged to a bank and they have a loan which was used to buy it secured by this mortgage.

    They didn’t realise it but this would mean new loans are needed. It also means requalifying for the new loan as well.



    The existing loan must be paid out as the ownership is changing and the mortgage must be discharged because of this.



    The company will need to be the borrower, in most cases, for this to happen with the directors of the company giving a personal guarantee.



    If serviceability is not met it may not be possible to do the transfer.

    For spousal transfer strategies see
    Tax Tip 68: Transfers Between Spouses and Stamp Duty in NSW Tax Tip 68: Transfers Between Spouses and Stamp Duty in NSW
     
  2. RE88

    RE88 Well-Known Member

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    Hi @Terry_w

    Stamp duty on property transfer between related parties will be based on the higher or market value or contract price, correct?

    Would a transfer from my brother's family trust (company trustee) to my dad or the other way around be considered related party transfer? Or is it not a related party transfer because my dad has no blood relationship with the trust?

    Thank you
     
  3. Terry_w

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

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    Depends on the location of the land
     
  4. RE88

    RE88 Well-Known Member

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    in WA
     
  5. Terry_w

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

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    In wa potentially duty free depending on structure of then transaction
     
  6. RE88

    RE88 Well-Known Member

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    Thank you
     
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  7. Real_Mayu

    Real_Mayu New Member

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    Hi Terry,
    What happens if the company owns the property and the directors who owns the 100% of the shares sell/ Transfer the shares to another relative and no longer directors?
    Mayuran
     
  8. Terry_w

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

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    The borrower is the company so nothing really changes on the loan side. There may be, and probably will be, a contractual requirement to get the lender's permission before doing this, but if you didn't they would probably not know about it. The original guarantors would still be guarantors.

    Also CGT and stamp duty considerations.
     
  9. Real_Mayu

    Real_Mayu New Member

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    Understood the contractual requirement, however does this trigger CGT event? And stamp duty?
     
  10. Terry_w

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

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    Yes transfer of shares is a CGT event and depending on which state the company holds property in could also trigger duty