Transferring property between family members is quite a common practice, and while it can be a very nice idea, unfortunately it's not as simple as just handing it over. In this article we will look at the different ways in which property can be transferred between family members, the costs involved, any taxes or liabilities you may be up for and what happens if a relationship breaks down after the transfer.
What is a related party transfer?
Transferring property between family members is known as a related party transfer. There are many ways in which this can be achieved, including:
- As a gift - for instance, as an inheritance from a deceased estate;
- selling the property to a family member, more often than not, at a below market rate;
- transferring the property via way of adding a spouse/family member to the Certificate of Title (the record of ownership of the property); or
- property settlement due to a divorce or de facto separation.
Will I have to pay stamp duty and/or Capital Gains Tax on the transfer?
Regardless of whether the property is being transferred to a family member as a gift or as a sale, stamp duty is still required to be paid by the person receiving the property. There are only certain circumstances where someone may be exempt from paying stamp duty. More information on this can be found on the Revenue NSW website. Some of these circumstances may include:
- if you are a beneficiary receiving the property from a deceased estate; or
- If the transfer is made between a married couple or de facto couple who has been living together for more than two years; or
- the result of a relationship breakdown and subsequent property settlement/division of assets; or
- when the property is transferred to the trustee of a special disability trust for no payment.
It's also important to consider that if you were to sell your property to a family member at a rate below market value (for example from a parent to a child), the stamp duty will be calculated on what the market value of the property is at the time of transfer, not the price in which the property was sold for.
There may also be tax implications, such as capital gains tax and GST, that may arise from the related party transaction. If the property is not the seller's main residence (for example, it's an investment property), then capital gains tax will be applied and calculated based on the market value of the property at the time of disposal. Advice should be sought from your accountant or tax advisor in this regard before proceeding with the transfer.
What is the process for transferring property?
If the property is 'gifted', there may be no need for a Contract of Sale to be drawn up, but rather a deed of gift ('Gift Deed') will need to be signed, which allows you to transfer ownership of the property voluntarily and without any financial consideration (without any money being exchanged). A property lawyer can assist you in drafting up the Gift Deed to ensure it is legally binding.
However, if the property is sold to a family member, the process would operate in much the same way as if you were selling your property through the regular channels. A Contract of Sale would need to be drawn up and both parties would need to engage the services of a property and conveyancing lawyer to assist with the transaction.
Where can I find out more information?
Depending on which avenue you choose to take, it is important to seek the advice of an experienced accountant to discuss the tax implications of a transfer and a qualified property and/or family lawyer to assist with the legal aspects of the transfer. It can be a complicated process if you are not fully aware of the implications of the transfer itself and/or any legal responsibilities you may have, whether you're the one transferring the property or the one receiving it.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.