Gifted share of prpoerty and tax

Discussion in 'Accounting and Tax' started by Enfield82, 2nd Apr, 2012.

  1. Enfield82

    Enfield82 Member

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    Hi Everyone. I have a simple question that I am hoping someone here can help with.

    My 3 siblings and I all own an equal share in a property we inherited from our Grandfather some years back. We have not sold it as we could never all agree to sell at the same time and it is not worth a great deal anyway being located in a fairly marginal regional area. We keep it as it is handy when we want to go home for a visit to friends and relatives but other than that it does not get used much and costs a small amount each year in rates and maintenance but still cheaper than a hotel or the hassle of imposing ourselves on others.

    Our older sister now lives OS permanently having married and settled in the US and doesn't want anything more to do with the property. She has agreed to transfer her share evenly amongst the remaining three siblings as a "gift of love and consideration" - no cash involved in other words. However before going ahead we are a little concerned about tax and whether we can afford to do this.

    We realise there will be a land transfer tax to pay and we can cover that easily enough - but how will this affect our income tax situation? Will this share be considered as income when transferred and will we be liable for tax on it?

    Thanks in advance for any guidance on this matter.
     
  2. Aaron_C

    Aaron_C Finance Broker

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    Gifting shares in a property isn't income.
     
  3. Terryw

    Terryw Investor

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    unless your sister established it as her main residence and she is not counting another proerty as her main residence overseas then she will be up for cgt on market value. since she is a foreign resident the rate of tax is likely to be much higher than normal.
     
  4. pennyk

    pennyk Member

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    Even though she doesnt want cash now, I would pay her out, rather than accept a gift, so that the will is honoured. That way, you avoid any problem which could arise with the estate down the track, if her situation and desires change.
     
  5. marg4000

    marg4000 Member

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    There is no gift tax in Australia, so the only expense would be stamp duty and legal fees. Your solicitor should be able to give you an accurate estimate of costs, obviously split 3 ways between the benefitting siblings.
    Marg
     
  6. Rob G.

    Rob G. Member

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    Apart from stamp duty which varies between states regarding exemptions, also consider the CGT on disposal of her share.

    If she is a non-resident then she may be taxed at a full 29% on the first dollar after CGT discount.

    Also, the US Govt may want a piece of the action so Australia's double tax treaty may override normal income tax rules.

    Time to get local and international tax advice methinks.

    Cheers,

    Rob
     
  7. Enfield82

    Enfield82 Member

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    Thanks everyone. Its a relief to know it is not taxable income. But the CGT is a bit concerning and something we hadn't considered at all. Terryw, no it was never established as her main residence and she does own another property as her main residence overseas. They own their own home in the US and may even have investment property there :(

    I understand now that she is disposing of a property and so CGT is applicable to any profits she makes but there are none being made as it is a gift. So as Terry said CGT is payable on the market value. I doubt it has risen much anyway so CGT would probably be minimal but I wouldn't want to create hassles or any costs at all for her.

    Obviously we don't want her to be out of pocket in any way just for being generous so it may be worth looking into raising the cash to buy her out as Penny said. Another loan sigh! This is a case of emotion over business sense as we want to keep the house even though it is unlikely to ever be worth much and it is handy to have.

    Ha-Ha Did I say simple question? What we thought would be a case of removing a name from the title is getting complicated. I guess that's property :) Thanks again
     
    Last edited: 2nd Apr, 2012
  8. Terry_w

    Terry_w Member

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    When was the property inherited?
     
  9. Mry

    Mry Member

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    From your perspective, you'd have to pay Qld transfer duty on 8.33333% of the value of the property. Your sister will have to deal with how the property was inherited and its cost base as a result, any costs spent on the property while it was owned to increase its cost base, the capital gains on the market value of her share when it was transferred and the tax on that disposal since she looks like being a non-resident.

    Have fun.
     
  10. Enfield82

    Enfield82 Member

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    2004, we didn't really think about it that much. One attempt at selling it but couldn't all agree and like I say not worth a great deal anyway in the scheme of things and the years have just passed by without us doing anything. 8 Years :eek:

    The house has a few years left in it yet but will need some money spent to rent out or anything and we probably wouldn't want the type of tenants we are likely to get for not much rent anyway. Thinking about the 8 years - I think a more than appropriate time has passed so I'm suggesting we sell and split the proceeds, everyone can deal with their own tax.
     
  11. Terry_w

    Terry_w Member

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    I was thinking of the 2 year rule - where you could sell within 2 years and have not CGT. But well over that now.

    This just shows the pit falls of not having a properly thought out will. For those of you still living planning a little now can save your heirs heaps of tax.