CGT & Other Implications of
- GIFTING PROPERTY
- TRANSFER, whole or Portions OF PROPERTY or
- ADDING NAME TO TITLE
Due to the large number of queries we receive requesting information in regards to the CGT implications of transferring property outside of a formal buy/sell arrangement we trust the basics and examples below will help you when considering the various issues to consider as you set about implementing this major change.
What are the main issues that need to be considered when gifting/transferring property?
The main issues to think about and plan around when gifting, transferring property include:
- When was the property purchased by the transferor
- Before 19/09/1985 or
- After 19/09/1985
- Why is the transfer necessary… at this time
- Is there a better result when transferred through a will
- What is the CGT status of the recipients/transferee
- Stamp duty implication to be paid by the transferee
- Centrelink implications for the transferor – where they are at pension age
- Legal/conveyancing fees for transfer
When did CGT commence?
In general, CG legislation applies to any change of ownership of a property, unless the property was acquired before 20 September 1985 when the CGT rules first came into effect.
How does CGT work?
For the basics on how CGT works refer to our Basics fact sheet at https://propertytaxspecialists.com.au/property-cgt-the-basics/ or our webinar at https://propertytaxspecialists.com.au/seminars/
Case Studies – Capital Gains on Transfer of Property to Relatives
Situation 1 – Gifting a property from Grandad to Granddaughter
Q – My wife’s grandfather wishes to gift his house to my wife and I, I would like to know what is involved?
Transferring a property to another person is simple enough. A solicitor or conveyancer can easily help draw up the documents necessary.
Before doing this though consider the impact from each side – the vendor and purchaser/receiver.
From Grandad’s perspective the first consideration is whether the property is the main residence (MR) for him. If it is his home and has been since it was purchased, then giving it away will be free of tax as a MR is exempt from CGT.
Transfer of the house will be deemed to have been done at market value. A valuer can help establish this.
One downside is that where Grandad is a pensioner and not a self-funded retiree the transfer value is likely to be taken up by Centrelink as part of the assets test impacting on his pension. The figure will be included for the next five years. This is the case even though there was no actual cash received.
If the property was a rental or investment then there may be a CGT liability on transfer.
As she receives title to the property, granddaughter will be liable for stamp duty at the market value of the property. So, there should be some cash available to pay for this.
Further consideration is required when deciding whether granddaughter will occupy it as a MR or a rent it out.
Any property acquired before CGT legislation was introduced in Sept 1985, it will be exempt from CGT. If this type of property is inherited on death its cost base for the beneficiary will be the market value at the date of decease.
In situations like this the challenge is to find a solution that extends the exemption but also deals with human/emotional factors and manages expectations of future development or occupation of the property.
Situation 2 – Parent gifting share of daughters’ family home
Q – I wish to gift my share in my daughters’ family home to her and her husband. She is about to pull the house down and rebuild. Is there anything I should know about CGT? I am not working but receive some super so my taxable income is low.
Most of the references to capital gains tax gives the impression that it is a separate tax. It is not. The effect of it can be separately calculated and that can be referred to as the capital gains tax.
Generally CGT applies to any gain generated on disposal of a capital asset including property.
It is basically the difference between the sale price and the cost base. For a property, the cost base includes the purchase price, stamp duty, legal on purchase and sale, agents’ fees on sale, renovations.
Where the property was purchased after 21 August 1991, the cost base can also include the rates, repairs and maintenance costs and interest to finance it acquisition – but only if they were not claimed as deductions against rental income.
Next comes the 50% discount – a concession which is available where the ownership period exceeds 12 months. It reduces the assessable amount by 50%
This calculated discounted gain will then be added to other income such as that from a super pension, investment income, salary etc. to determine the tax liability overall.
Effectively, the tax may be minimal or not at all … in some circumstances.
Consideration should also be given to stamp duty as Dad’s portion on the title is transferred. This is best done before renovations so it can be calculated on a lower value.
Situation 3 – Adding a name to title – Mortgaged Property?
Q – I am wondering if there are fees associated with adding my name to the title of our mortgaged property?
The basic difference of this situation is the mortgage on the property.
From a CGT perspective it is irrelevant what asset/property is given as security for the loan. What matters is whether the title changes.
Where the additional name is being added to the property title, the lender has to be notified as they will be holding the Title deed until the mortgage is repaid.
Where the change is not to the title but only adding a name onto the mortgage loan to satisfy the bank, there is no CGT implications.
In NSW and likely other states, adding a spouse onto the title to make it a joint ownership of 50/50, will not incur stamp duty.
As the property is likely to have been a MR to start with, there should be no CGT on transferring half to the spouse.
Situation 4 – Adding name to siblings on inherited property?
Q – When my mother died 15 years ago, she left the family home to me and 2 of my sisters. At the time of transfer it was decide to put the title in my sister’s name because I was having financial difficulties and I didn’t want to jeopardise the property. We now want to include my name on the title and need advice on what’s required. So in effect my sisters will be gifting me a one third
Assuming the property was Mum’s Main Residence, the sisters would have received the property with a cost base being the market value on the date of decease.
Where sisters have rented the property out since inheritance, then Transferring a portion to brother now will have the following implications
- Stamp duty to be paid on potion acquired by brother
- CGT payable by sisters
Situation 5 – Parents on title to support loan to Son – Dad dies?
Q – My son’s property is with 3 names in the title including mine and my husband’s.
Our names were added to the title as our property was mortgaged to support his loan we had no interest in the property each owned 33%.
Property was my son’s principal place of residence. Later rented for maybe 10 years.
My husband passed away recently. My husband’s share of the property needs to be transferred to him as I have no interest in this property. Pleased to know if this can be done
With the rising property values parents are supporting their children’s entry into a home by either lending money or mortgaging their own home as security for the large loan to the children as in the situation above.
For both Mum and Dad in this situation, the 1/3 share for each is subject to CGT if sold or transferred to the son.
If the portions are transferred to son, stamp duty will have to be payable by him.
Mum will be liable for CGT on sale. The transfer/sale value will be equal to the market value of the property on date of transfer.
Deceased Dad’s portion will be transferred in accordance to his will or his wife if no will. CGT will be payable when sold or transferred to the son
Situation 6 – Transfer to children due to failing business venture?
I would like to inquire about transferring my residential home into my son’s name.
I would like to do so to avoid losing my house due to a failing business venture.
Wondering if this is possible as we still have a mortgage on the property.
I would like to know if it can be done and what fees taxes etc. may be applied. We would like to still live in the property and pay off our mortgage but do not want to lose it.
In this situation the critical consideration is whether son has sufficient resources to persuade the bank that he can service the loan on his own.
Stamp duties on transfer will be payable at market value.
Where the property was Mum’s Main Residence and has been so established from date of acquisition, then no CGT is payable.
Situation 7 – Process to gift or transfer property?
Q – Enquiring about getting name put on a title as a gift.
The basic process to transfer or gift property is having a solicitor process the transaction. They will do all the relevant searches verify ownership, then discuss with the title holder to verify their wishes. Also to consider any changes to existing wills.
Solicitor will attend to payment of stamp duty as transfer will not occur until payment is made.
If any CGT issues are involved Accountant/tax adviser will attend to calculating capital gains payable and preparing tax returns.
Consideration should also be made on the impact of any pension entitlement when property is transferred as the market value will be part of the assets test for testing whether entitled to a pension.
Situation 8 – Transferring to a trust?
Q – Looking to transfer mum’s properties to grandkids …may need to be in trust???
Properties can be transferred to discretionary trusts with the same impacts as mentioned in all the cases above including stamp duty and CGT.
In addition consider that land tax is applicable without a threshold on property owned by trust – making ownership a bit more expensive.
Consideration should be made to whether or not it would be better to get advice to effect this result through ‘testamentary trust’ created on execution of the will.