selling at cost price

Strange question: Can I sell my property at purchase price? Really can’t be bothered with CGT and stuff, just wanna repay mortgage. Is that even possible in NSW?
I’m just thinking as long as the banks get their mortgage back, it should be fine.
What’s the rule around this scenario please? Thanks.
P.S. Selling it to family

 

As long as purchase price is also current market value, there is no issue.
But if you are selling at below market value to a family member to avoid CGT, that’s not allowed.
This seems like a question for your accountant.....

 

Banks won't care. ATO will.

 

Just to refine this answer. You can sell at any price but will need to pay CGT on market value. The family member you sell it to will have to pay stamp duty on market value also.

 

Is the property worth more than you paid? If it is I would be happy to buy it from you at cost price

 

Yes you can sell at cost - but you will be deemed to have sold it at market for tax purposes.

 

Even though I won’t make or take any profit in this scenario, I’ll still have to pay CGT to ATO? Banks fine, ATO not fine? How about 25% below market? Still?
What’s the implication? Any link please?

 

Market Value substitution rule
Capital proceeds

You need to pay tax, and the buyer stamp duty on the purchase/sale as if it was done at arms length.

The only reason you are not making a profit is because you are selling to family. If you sold it on the market you would get market value for it.

 

Thanks heaps for this. Spot on.

 

I assume that the proposed sale to a non-arms length person. With even basic legal costs and stamp duty and CGT likely to apply using the market value substitution rule (and duty based on present market value) there may be little merit to such a change. If there are legal implications behind the proposed idea it would be sensible to get legal advice.

 

Interesting that the seller is deemed to have sold at higher market rate.

Does that work for the buyer, their cost price is deemed as the higher market rate, saving them CGT?

 

Depends on the situation. For example if a property is gifted to a child its impossible to have a $0 costbase. A scheme could be run where the property is gifted for $0 by a CGT taxpayer (A CGT loss occurs ?) to a child who occupies as main residence based on no cost who later sells ($0 CGT on a massive gain). The rule intends to prevent this behaviour.

If it was gifted for a lower value but similar to market the actual contract may be valid. eg to avoid agents fees and other costs and to assist a child into property market. There may be special qualities of the property that are intangible to value based on land alone eg It is used as part of a family farming venture.

The correct rule name is the market value substitution rule for capital proceeds. If its used it can affect buyer and seller and both parties have capital proceeds. This impacts the CGT event to acquire and CGT event to dispose. One as buyer and other as seller. ATO view is you're said to be dealing at ‘arm's length’ with someone if each party acts independently and neither party exercises influence or control over the other in connection with the transaction. The law looks at not only the relationship between the parties, but also the quality of the bargaining between them.

When parties seek to transact at a price that is not arms length to market value then personal advice should always be the warning. To avoid any unwarranted tax concerns. State duties may be based on a valuation in any event. OSRs expect a valuation when dealings are with associates etc