Can you avoid fees and charges when transferring property within the family?
Learn how tax and charges work when gifting or selling property to family.
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Transferring or gifting property to a family member can be as simple as submitting a property transfer form . But there are costs involved, even when the property is a given as a gift. You still have to pay stamp duty on the market value of your property and potentially capital gains tax (CGT) as well.
Knowing the proper way to transfer property within your family, and how to avoid being charged hefty fees is essential when thinking about any kind of property transfer. And however you decide to execute the property transfer it is vital to have a qualified conveyancer or solicitor guide you through the process.
Ways to transfer the property
There are two ways you can transfer a property to a family member: gifting and selling.
You can give ownership of your property to a family member as a gift. This simply requires filling out the necessary paperwork with your state revenue office and title office, including a Transfer of Land. Your conveyancer may advise you to organise a Deed of Gift as well.
No money changes hands in this scenario, but you are still liable for the paperwork processing fees and the stamp duty costs. If the property was not the seller's primary residence there will likely be CGT costs as well (more on that below).
You can of course sell your property to a family member. Parents will often sell to a child this way, and may adjust the price to cover their costs while offering their child a better deal than they would have received on the market.
But again you will be liable for stamp duty and it will be calculated based on the property's market value and not the sale price (if selling at a discounted price). Also, if the property is not the seller's main residence (say, if it was an investment property) then capital gains tax will probably apply as well.
Even when selling or gifting a property to a family member you need to determine the property's market value. The government uses this "true" valuation to determine the stamp duty and CGT costs regardless of the discounted selling price.
The Australian Tax Office says, "You should obtain a valuation from a professional valuer, or work out the market value yourself using reasonably objective and supportable data. This can include the price paid for very similar property that was sold at the same time in the same location."
What fees will you pay when transferring property to family?
Below are a few examples of fees and charges that may apply when you are transferring or gifting property within your family:
Fees paid by the original owner
- Capital Gains tax (CGT). The CGT cost will depend on the amount of capital gain or capital loss resulting from the CGT event. In event of a capital gain, your total gain amount will be the difference between your capital proceeds and the cost base of your asset. The actual CGT amount you pay depends on your income, as it’s added to your income tax for the applicable year. Read more about CGT when selling in our in-depth guide.
- Valuation costs. You might need to have the property value determined by a certified valuer before transferring or gifting your property. This is so you will know how much you will report that you have gained or loss when filing your income taxes. Independent valuations cost between $300 - $900 depending on where the property is.
- Legal fees. You should have a conveyancer or solicitor oversee the property transfer and have them draw up contracts or transfer documents with title details, the value and determined price of the property, and personal details for both parties. These legal documents can be used in case the validity of the property transfer is ever questioned.
Fees paid by the new owner
- Stamp duty. Also referred to as Stamp Duty Land Tax, this tax is calculated on the value of the property or land that is being transferred or gifted and is represented as a percentage. Some purchases may be exempt from stamp duty, so check with your state office of revenue. Stamp duty is calculated based on the state you're in. Use our calculator for a rough guide on how much this would be.
- Legal fees. You should have a conveyancer check over everything before signing.
Example transaction: selling a property to a family member at a discount
Vanessa and James own a home in NSW. They sell it to their son Tom for $300,000, knowing that it's true value is higher. Tom pays them $300,000 and Vanessa and James get a professional property valuer to look at the property. The valuer puts the property's market value at $500,000.
Tom's costs therefore are:
- Sale price: $300,000
- Stamp duty (calculated on $500,000 for non-first home buyers): $17,990
- Transfer and mortgage registration fees: $328
Vanessa and James have used the house as their primary residence for more than ten years. Therefore they won't have to pay CGT.
How to avoid fees and charges when transferring property
When you gift your property you are still charged CGT, even if you sell the property for a small amount to a family member or friend. As the ATO states, the property is calculated at market value if you:
- Receive no money for your property
- Receive less than the market value for your property; or,
- Do not deal at arm's length with the buyer during the sale event
Dealing at arms length refers to both parties in the sale acting independently and having no "influence or control over each in connection with the transaction".
You might be able to avoid hefty fees when transferring or gifting properties in some select situations and scenarios where CGT and other charges will not apply. Below are some examples of these situations:
- If you acquired the asset before 20 September 1985: This date is when CGT came into effect, so any property or assets that were acquired before this date may be exempt from CGT.
- If the property being transferred is your home (main residence): If you have been living at the property and have indicated it as your main place of residence (ie. the address is on your current driver’s license and you receive mail there) then you may be exempt from CGT when gifting or selling a property to another.
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