Need Legal and Tax opinion on transferring my IP to my Son

Discussion in 'Legal Issues' started by kvellimalai, 3rd Feb, 2020.

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  1. kvellimalai

    kvellimalai Well-Known Member

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    Hi Gurus,
    I am holding an IP from 2003 in Sydney which has appreciated 2.5 times the purchase cost. I am planning to transfer this property to my Son who is going to get married soon. Currently I am weighing the odds on the following.
    1. Transfer one of my property to him legally as it is located in a central place.
    2. Buy a new property which will cost him more in stamp duty and loan amount.

    Is there a way to minimize the capital gains tax (which will be very high) and stamp duty if I go with option 1.

    Thanks in advance for the help and support.
     
  2. Terry_w

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

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    any transfer will be a CGT event and a dutiable transfer unless done at your death.
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    You could minimise capital gain by demolishing the buildings and sell for land value only, stamp duty also would be at land value.

    You would of course required a valuation as to what land value was to satisfy the OSR for stamp duty & ATO for CGT.

    Otherwise follow @Terry_w's suggestion.
     
  4. Terry_w

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

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  5. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    One strategy may be to use the equity in the IP and onlend to your son and take a equitable mortgage over the property allowing him to buy (FHOG ?) and also lead to a tax exempt land tax and CGT issue. It may also assist asset protection if his marriage fails. Seek legal advice on options. Your tax position would be unchanged as the interest incoming = outgoing.

    No duty, no CGT and possible asset protection enhancement.
     
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  6. Terry_w

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

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    the only trouble is that interest would be payable. But that is probably going to be much less than the CGT and duty plus a better outcome potentially
     
  7. spludgey

    spludgey Well-Known Member

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    Don't give them any ideas! :eek:

    On a more serious note, why not just let your son use your house as though he owned it, while you retain ownership? Seems far cheaper and easier.
     
  8. kvellimalai

    kvellimalai Well-Known Member

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    Thank you very much for all the ideas. Aim is to demolish the house and construct a new house on it for him. As explained by Scott, if I demolish the house the value may be very less and CGT will be very less.
     
  9. datto

    datto Well-Known Member

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    Could Part IVA apply because you are purposely reducing the value of an asset to avoid some tax?
     
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  10. Terry_w

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

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    watch out if transferring vacant land. Get tax advice.
     
  11. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    A change of legal owner at market value is not likely to be a Part IVA concern. The market value substitution rule is imposed in any event and valuation is also required for stamp duty. Its a very non-arms length arrangement to give property away !! If the premises are in a state for demolition and a matter understood by the parties to a contract there may be a lesser value with the house insitu v cleared land reflecting the costs to seek approval, remove services and clear the land and dispose of the debris. Clearing the land may incur CGT costs and reduce the tax position for Dad BUT may enhance value for the disposal.

    I would consider that the GST issue for vacant land is minor as :
    1. Dad is unlikely to be conducting an enterprise in the disposal of the land to his son in a private arrangement as proposed
    2. No consideration. (ANTS s9-5)
    3. Dad isnt likely to be required to be registered for GST for a private transfer / gift
     
  12. Terry_w

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

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    There probably should be consideration. Perhaps a vendor finance style arrangement might be worth considering, even at nil interest.
     
  13. Scott No Mates

    Scott No Mates Well-Known Member

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    As a side note, vacant land may be more valuable than land with a very poorly house as demolition can be seen as an improvement and due to scarcity may be considered more valuable not less.
     
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  14. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Terry any idea if the family court looks at statute barred loans as a issue ? ie a nudge nudge wink wink loan that is a gift is disregarded by the family court ?
     
  15. Terry_w

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

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    Statue barred loans are still loans but unenforceable so they wouldn't count I would think.

    They courts will also disregard pretend loans or gifts described as loans.
     

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