What Do You Need to Know Before Gifting Real Estate?

Are you considering gifting real estate property to a family member? Transferring a house or other property to family members can have various benefits, but there are some nasty pitfalls you’ll want to avoid.

Giving property to your heirs while you’re still alive may sidestep the probate process. Property transfer can also be part of an asset protection strategy.

But giving property to someone else can have financial and tax implications. Here’s what you need to know before transferring real estate ownership.

Can You Give Real Estate as a Gift?

Under Australian law, you can give real estate to a relative as an outright gift. When giving ownership to a third party, there is no exchange of money. The gifting process involves filing a Transfer of Land with your title office. Filing a gift deed may also be necessary.

In some cases, property gifting takes place as a sale. For instance, if you want to give a family member a house but need to cover costs, they can buy the property at a discounted price.

Who Should Be on Title for Property Gifted to Family Members?

When buying a property, you receive a Certificate of Title. This document outlines your rights and responsibilities as the property owner. When you sell or gift the property, the government will record the change on the property title. This official record contains all property details, including:

• Ownership
• Mortgages
• Easements
• Covenants
• Caveats

After the property title transfer, your family member will be the owner of the property.

Is Gifted Real Estate Taxable?

Australia doesn’t have a federal gift tax for:

• Cash gifts
• Charitable gift donations
• Immovable property

However, real estate may be a taxable gift. Depending on the type, location, and value of the property, the new owner may be liable to pay:

• Stamp duty
• Land tax
• Absentee owner surcharge
• Vacant residential tax

The new owner’s tax obligations depend on the relevant state’s tax laws.

What are the Tax Implications of Gifting Property?

Before you transfer ownership of a property, understanding the tax consequences is critical.

Capital Gains Tax

From a tax perspective, capital gains can impact your financial situation. You need to pay capital gains tax (CGT) as part of your income tax assessment when disposing of a property. In other words, the proceeds from the sale form part of your taxable income.
In a sale, the capital gain is the property’s purchase price minus the selling price. If the property is a gift, the capital gain is the property’s fair market value minus the purchasing price.
When gifting a house, the Australian Taxation Office (ATO) assesses the capital gains tax bill using the market value on the transfer day. A professional valuer can determine the property value using objective and verified data.
In some cases, property owners can avoid capital gains tax. You can eliminate or reduce CGT if you are transferring:

• Your primary residence
• Investment property
• Small business premises
• Property you purchased before September 20, 1985

A rental property can be your place of residence. Under the temporary absence rule, the property remains your place of residence if:

• You didn’t vacate the house for longer than six years and
• You lived in the house for at least twelve months before moving out

Stamp Duty

Australian states levy stamp duty on a transfer, even if the property is a gift. Contrary to popular belief, stamp duty is not a one-off payment. Under tax law, buyers need to pay stamp duty on all property deed transfers.
Stamp duty falls under state tax. For example, in New South Wales and Queensland, you can transfer an interest in property to your spouse without paying stamp duty. You also don’t need to pay duty if, after the transfer:

• You and your spouse own the entire property as joint tenants
• The property is your permanent place of residence

Before beginning the transfer process, it’s best to seek financial advice to learn more about the laws in your state.

Other Considerations When Transferring Property to Someone Else

Pension Payments

The consequences of gifting a house may extend beyond taxes. Before transferring a property to a child, elderly parents need to consider the impact of the transfer on their pension payments.
Centrelink assesses the income from a transfer using the property’s value and not the actual selling price.
For example, suppose you give a house with a value of $250,000 to your children. Even if you sell the property for $100, Centrelink will assess the proceeds from the sale as $250,000. In this case, you may lose your pension payments.

Home Loans

If the property you transfer has a mortgage over it, your relative has to take over the loan. Before commencing with the transfer, the lending institution holding the mortgage needs to approve the new owner.

Costs

In addition to taxes, various fees may apply to a property transfer. You may need to pay for an independent valuation that you will need when filing your taxes. You will also likely need to pay a solicitor to:

• Provide you with legal advice
• Draw up the necessary agreements and transfer documents
• Transfer property titles

Before gifting a house to a relative, consider any additional costs carefully. You also need to ensure that the new owner can afford costs, such as the stamp duty.

Contact the Estate Planning Experts in Australia!

At House of Wealth Property Tax Experts, we can assist you in all matters relating to real estate taxes. We can provide you with professional advice and structure your taxable estate to lower your tax burden.
Are you planning on giving real estate to a relative as a gift? You may be eligible for an income tax deduction or federal estate tax exemption. Using our tax planning service, you can rest assured that you are not paying a cent in unnecessary tax.
Our other services include portfolio management, real estate tax accounting, and Centrelink advice. If you are looking to give real estate to a relative, contact us today to schedule a free consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.