Considerations before gifting property to a family member

In a property market that is increasingly difficult to buy your first home, transferring a property to a child can be an attractive way to provide financial support, or pass on wealth during your lifetime. Whilst the process of gifting a property is simple, the financial consequences of doing so can often be significant. 

 Before you transfer ownership to your child or other family member, it is important to understand the potential stamp duty, capital gains tax (CGT) and pension implications.

1. Stamp Duty

 One common misconception is that transferring property to a family member for no payment, or for a nominal amount such as $1, avoids stamp duty. 

 In South Australia, stamp duty applies to all transfers of residential property, and is calculated on the higher value of: 

• The consideration paid (in the case of gifting a property, the consideration is listed a nil); or 

• The Valuer-General’s valuation. 

This means that even where a parent gifts a property to their child, the recipient may still face a substantial stamp duty and registration fees bill, based upon the current capital value of the property.  

In some cases, there may be a stamp duty exemption that applies, such as the transfer of a principle place of residence between spouses. It is important to seek advice about the likely duty payable and whether any exemption or concession may apply to your particular circumstances. In the meantime, you may calculate the potential stamp duty and registration fees using the capital value of your property and Land Services SA’s handy calculator – https://www.landservices.com.au/resources/fees-guides-forms/property-transfer-fee-calculator/  

2. Capital Gains Tax

Capital gains tax is another important consideration, particularly where the property is an investment property, holiday home or vacant land. 

Under the Australian Taxation Office’s market value substitution rules, gifting property to a family member can be treated as a disposal at market value for CGT purposes, even if the transferor receives no money. 

For example, imagine a parent purchased an investment property for $300,000 that now has a market value of $600,000. If the property is gifted to their child, the parent may need to pay capital gains tax using the property’s market value of $600,000, even though the parent received no money from the gift. 

Before gifting a property, it is important to seek advice from your accountant to ascertain whether any capital gains tax may apply. Capital gains tax is a complex area that requires specialist advice, as the applicable cost base, capital losses, ownership period and any available concessions will affect the final amount (if any) payable.

3. Could Gifting Property Affect Your Age Pension?

For older Australians, the potential impact on the Age Pension may be just as important as the tax consequences. 

Services Australia applies gifting rules to prevent people from giving away assets. Services Australia limits the amount of money that can be gifted to someone in a single financial year, or in the preceding years before receiving a pension.  

For example, gifting a property to a child may reduce the parent’s actual assets but still leave some or all of the gift assessable for pension purposes. This could reduce their pension entitlement or prevent them from receiving a pension they might otherwise qualify for. 

The precise outcome depends on the individual’s circumstances. Financial advice should be obtained before completing any transfers. 

 Summary 

Gifting property can have consequences beyond taxation and government benefits. Once ownership transfers, the original owner may lose control over the property and could face risks if the recipient experiences relationship breakdown, financial difficulties or bankruptcy. 

Before proceeding, consider obtaining legal, taxation and financial advice to assess the full implications and whether alternatives, such as providing financial assistance or dealing with the property through your estate plan, may better achieve your objectives. Considering gifting a property? Contact Eric Metcalf to discuss the legal implications and the options available for your circumstances.