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Selling a house to family member.

Discussion in 'Legal Issues' started by Nikolina, 1st Aug, 2016.

  1. Nikolina

    Nikolina Member

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    Can a parent give a house as a gift to their kids? If my understanding is correct the sale can be made but for stamp duty purposes has to be at market value? So for eg, sale at 300k but the 300k is never paid as house is a gift but stamp duty must be paid? Is this correct? And would this effect their penson? I would presume Centrelink would still see it as gifting and since you can only gift $10k per yr with a total of $30k in 5 yrs i presume the 5 yrs no pension rule would apply?
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    They can give it all away but you'll have to pay stamp duty at market value. It will hammer their pensions for 5 years as well. An unexpected consequence for you (or your parents) is the cgt liability as your cost base is $0. If it's already liable for cgt they're in for a shock.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes a house can be gifted - but just because it can doesn't mean it should.

    Social Security act gifting rules will apply for the pension too.

    What are you trying to achieve?
     
  4. Nikolina

    Nikolina Member

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    Just want to gift it to their kids. Not trying to avoid anything. They have already sat out a 5yr period previosuly. Their considering all their options.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What if you gift it now and they end up getting a divorce later. What if the kids die after receiving the gift. many things could happen and your property could end up in a place other than where you intended.

    Do they want to live in the property?

    What about some alternatives.
    Could you lend them some money instead - perhaps interest free.
    Leave the property in your will - directly or via a testmantary trust.
     
  6. Nikolina

    Nikolina Member

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    its exempt for cgt because it was purchased pre 1985
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This may be even more reason to keep it.

    If you gift it now it would be subject to CGT from now on. Where as if you kept it it could continue to grow tax free.
     
    York likes this.
  8. Nikolina

    Nikolina Member

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    1. A divorce will never happen. I can say this because when you come from a old school european family divorce is not a option and they have been married already for over 35 yrs.
    2. No they will never live in it as my grandma lives in it with my uncle and has for over 30 yrs now rent free. (Uncle is part owner)
    3. My parents would never accept/take money from the kids. Its not in our culture.

    If it was to be transfered it would carry on as is, i would never accept any rent.
     
  9. Nikolina

    Nikolina Member

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    That is a very good point but they want to gift it or for the uncle to pay them out... which he is on board with. Their just wanting to consider all options.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That is fine if you know all the potential risks - just make sure you get some legal advice on all the issues as it is a large transaction.
     
  11. Nikolina

    Nikolina Member

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    Will do. Thank you for all your replies. I would prefer the leave it in a will but at the end of day its up to them. I have pointed this option out previously to them..
     
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  12. wylie

    wylie Moderator Staff Member

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    Wouldn't the cost base be the figure that duty is paid on, even if the "actual" purchase price is lower or nil?
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes - market value substitution rule
     
  14. Scott No Mates

    Scott No Mates Well-Known Member

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    Can you clarify that @Terry_w? Are you saying if it cost nothing, then when you sell it is is assessed as if you acquired it at market value?
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I will have to investigate - but yes I think so.
     
  16. wylie

    wylie Moderator Staff Member

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    The asset is moved from one owner to another and regardless of the price paid, the duty is paid at market value and that becomes the new cost base (in my experience).

    If a gain has been made the capital gains tax is paid and the new cost base is the market value. Future gains are calculated from the new cost base.

    Pre-CGT properties need to be treated differently of course.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    (1) The first element of your * cost base and * reduced cost base of a * CGT asset you * acquire from another entity is its * market value (at the time of acquisition) if:

    (a) you did not incur expenditure to acquire it, except where your acquisition of the asset resulted from:

    (i) * CGT event D1 happening; or

    (ii) another entity doing something that did not constitute a CGT event happening; or

    (b) some or all of the expenditure you incurred to acquire it cannot be valued; or

    (c) you did not deal at * arm's length with the other entity in connection with the acquisition.

    s 12-20 ITAA97
    INCOME TAX ASSESSMENT ACT 1997 - SECT 112.20 Market value substitution rule
     
  18. Scott No Mates

    Scott No Mates Well-Known Member

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    So effectively a CGT-free sale, then if the buyer flips the property on the day of settlement (for MV), then there's no CGT paid there either? Doesn't sound quite right if the gate is wide open for such a rort.
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    X gives Y a $100,000 property for nothing.

    Y sells the property for $100,000 to Z.

    No CGT would be payable by Y but X would have to pay based on a $100k 'sale' price
     
    Marg4000 likes this.
  20. gecko235

    gecko235 Member

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    My sister has split from her partner and want the ex off the loan as hes stopped contributing. Is the best option for my parents to buy it? (They are thinking of doing this)