Learn how tax and charges work when gifting or selling property to family
The current market hasn’t been particularly forgiving for new home and property buyers, so the process of gifting and transferring property deeds is an option you might be considering. Parents may choose to transfer property to their children who may not be able to buy or find a new home, or they may want to ensure that the property stays within their family before they pass away.
Transferring or gifting property to a family member can be as simple as submitting a property transfer form without having to sign a bill of sale. 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.
Unfortunately, even when transferring property to your family members in exchange for no or little money, you may still have to pay capital gains tax on the market value of your property. Read on to find out more.
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.
- How much is it? We explain how CGT works in our in-depth guide, but it's basically calculated using the market value of the property minus the expenses you incurred owning it. The figure left after this is your capital gains amount, which is then added to your income tax for that year.
- 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.
- How much is it? Independent valuations cost between $300 - $900 depending on where the property is.
- Legal fees. You might also want to have a lawyer 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. These may be referred to as ‘probate fees’.
- How much is it? This will depend on the lawyer used and what services they carry out.
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.
- How much is it? Stamp duty is calculated based on the state you're in. Use our calculator for a rough guide on how much this would be.
How to avoid fees and charges when transferring property
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 and scenarios:
- 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 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.
What is Capital Gains Tax?
The Australian Government defines Capital Gains Tax (CGT) in the following way: “A capital gain or capital loss is the difference between what it cost you to get an asset and what you received when you disposed of it.”
So, according to this, Capital Gains Tax is a tax that applies when you dispose of a certain asset. It’s important to note that CGT is calculated separately from the rest of your income tax but then included in it. Make sure that you are familiar with how to keep records to ensure that you are keeping track of your capital gains and losses. You also need to know how to properly report any capital gains or losses when you are ready to submit your income taxes.
Even if you are gifting property, CGT is applicable. Though the Australian Government says that some of your main personal assets may be exempt from CGT, including your home, there are still instances during a property transfer when CGT will apply such as when transferring investment properties.
Does Capital Gains Tax apply when transferring property within the family or to friends?
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. The Australian Government refers to this process as a ‘CGT event’.
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”.
Get advice about Capital Gains Tax
Transferring property to family or friends can come with time-consuming taxation matters. Seek professional advice about these matters from the Property Tax Specialists today.
The Property Tax Specialists are an award-winning leader in the Australian taxation field, with strengths in accounting, marketing and business. They can help with matters of asset protection, property investing, accounting and taxation, including capital gains tax enquiries. Fill out this form with your query to get into contact with an expert from Property Tax Specialists today.
FAQ about capital gains tax
If I am living in an investment property and want to sell my previous main residence, how are capital gains calculated?
CGT is generally determined on how long you were living in your previous main residence and, if applicable, how long the residence was rented out for. If you are no longer treating your previous home as your main residence, then the CGT will be based on the valuation of the home when you first lived there, or you first began to rent it out. Speak with an accountant to learn more.
Is vacant land subject to CGT?
Yes, vacant land (provided it is not listed as your main residence) is liable for CGT. However, if you have owned the land for more than a year, you may be eligible for a 50% tax discount. Check with the ATO or a tax advisor for more information.
Seek professional assistance
Keeping property within the family can be a big deal for some people, so a transfer process that is straightforward and inexpensive may be ideal. Avoiding fees like Capital Gains Tax can be done, but you must know how to avoid these charges and always speak with an accountant or tax representative to know exactly what fees you may be subject to.