Gifting property before death can be an effective way to avoid the probate process, however there are still financial and tax related factors to consider.
Can I gift property before death? If so, how?
You can gift property under Australian Law in two ways; either as an outright gift or as a gifting sale. Individuals can gift real estate to their relatives as an outright gift. This gifting process involves filing a transfer of land with your title office and can require a gift deed. You can also gift property through a sale whereby the family member buys the house at a discounted price.
Are there tax implications?
Australian law does not have a federal gift tax for cash gifts, charitable gift donations or immoveable property. Despite this, depending on the type, location and value of the property real estate may be a taxable gift. This will mean the owner will have tax obligations (depending on the relevant state’s tax laws) to land tax, stamp duty, absentee owner charge and vacant residential tax.
Capital Gains Tax (CGT)
CGT must be paid as part of your income tax assessment when transferring a property, meaning the proceeds from the gifting sale of the property will form part of your taxable income.
Stamp duty
Even if the property transferred is a gift, Australian states levy stamp duty on the property regardless. Tax law states that buyers need to pay stamp duty on all property deed transfers. Whilst stamp duty varies from state to state, some states like NSW and QLD maintain that you are able to transfer an interest in property to your spouse without paying stamp duty if you and your spouse are joint tenants and the property is your permanent place of residence. It is important to check the relevant tax laws in your state.
Important factors to consider
Pension payments
Given that Centrelink assess the income from a transfer from the property’s market value and not the price it was sold for, transferring property can impact your eligibility for your pension payments.
Home loans
The new owner will need to take over any loans or mortgages that the property may have, meaning that a lending institution holding the mortgage will need to approve the new owner.
Costs
Outside of taxes, there will likely be other fees involved in the transfer of property. It is highly recommended that a solicitor is engaged to assist you in this complex process. They will help to provide legal advice, draw up the necessary agreements and transfer documents and transfer property titles.
Get advice
Regardless of which path 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 a family lawyer to assist with the legal aspects of the transfer. It can be a complicated process if you don’t fully understand the implications of the transfer itself and any legal responsibilities you may have, whether you’re the one transferring the property or the one receiving it.
In the event that you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.