Tax. We all hate it but most of us can’t avoid it. Property Expert Andrew Winter provides his expert advice to selling a property and capital gains tax.
Paying tax always hurts and when it comes to real estate it's no different.
Australia’s home buying market is still buoyant in many parts of the country. Great news if you’re already on the property ladder but bleak for first time buyers.
Increasingly, parents and even grand parents are selling their investment properties to their children for a knock down price. Sometimes even giving them away….lucky children!
While this all is perfectly legal, there are certain tax pitfalls to be aware of.
1) The sale of an investment property will incur capital gains tax - no surprise there - but did you know capital gains tax is calculated on the market value not selling price of the home?
For example - if you’re a parent who owns a holiday home worth $250,000, you can sell it to a family member for $150,000. But the tax office will wants it’s slice of the action.
Capital gains tax will be calculated on the value – the $250K not the $150K you sold it for.
2) Even if you give the property away for free, the same rules apply.
You will have to pay capital gains tax on the market value of the home even though you didn’t get a penny for it.
3) And its not all good news for the lucky recipients either. They may be paying a bargain basement price but there’s stamp duty to consider
This is also usually calculated on the market value of the house. Although there may be certain concessions if you are a first time buyer.
4) Either way it’s always a good idea to do your homework.
Check with your local tax department and government office to see what your liable for.
Helping family members onto the property ladder is a kind and noble thing to do - just make sure you aren’t the one that ends up paying for your kindness.