buying property at below market value

[LBA_ENG]

Hi,

I have a freind who I intend to buy a property from and use as primary residence. I am looking at buying at around $180K, but the market value is in the range $220-240K (the reason i'll be paying less is that I own 1/3 already but not on paper). Can we base Stamp duty and CGT on this lower value or will we run into problems with the tax-man? If not how far below market value could be seen as ok.

thanks in advance,

Leo

 

[Kristine..]

Hi Leo

Welcome to the Forum

Advantageous or Favourable purchases are not uncommon.

Stamp Duty and duty payable on the Transfer of Land are calculated on the sworn Market Value of the property at the time of the transfer.

The purchase price noted on the Contract of Sale (if any) is immaterial. The Government calculates and collects taxes as if the transfer happened 'at arms length'.

The assessment for Capital Gain will depend on whether the property has been occupied by your friend as their Principal Place of Residence. If not, then to the best of my knowledge, the Capital Gain would be calculated in the usual way ie the capitalised cost base of the property and the usual twelve month / 50% of net CG rules would apply.

I have customers currently buying from their parents and they were shocked to discover that the State Revenue Office required them to pay the Stamp Duty prior to lodging the Transfer of Land. This meant that they had to come up with nearly $12,000 prior to finance whereas for a on-market transaction Stamp Duty is not required to be paid until lodgement of the Transfer, usually 90 days after settlement.

So be aware that each situation is different. www.sro.vic.gov.au and also phone the State Revenue Office for further explanation.

One comfort for my customers is that although they have ended up selling a car to raise the money to pay the Stamps, the lender will allow up to 110% of the purchase price, thus enabling them to borrow the money for Stamps and also for a small amount of debt consolidation. After settlement they will be off to replace the car!

Hope this helps

Kristine