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Jansen Walsh & Grace

Transfer of properties and loans to your children

Since 1 May 2018, we have noticed that the banks are now applying stricter lending criteria.  It is getting harder for your son or daughter to buy a house.  For some time now, it has been quite common for parents like you to transfer a property, or to provide a loan, to their son or daughter.

Quite a number of parents provide loans to their children to enable them to buy a property, or transfer a property they own to their son or daughter.  This is called the Bank of Mum and Dad.  Collectively, the Bank of Mum and Dad is one of the largest financial institutions in Australia.  There are obvious dangers in being the Bank of Mum and Dad.  You want to be sure that you are making the right decision.  If you have other children, a gift of money or property to one child may cause resentment on the part of the other child, even though they tell you: "Whatever you want to do".  You may take this into account by amending your will.  However, this is not without risks.  For example, because your child could get married or form a relationship which later breaks up, we recommend that your loan be documented and supported by a mortgage or a charge, so that it is not subject to orders under the Family Law Act.  This also provides some protection if, at some later date, your son or daughter becomes bankrupt and the property vests in the trustee of ttheir bankrupt estate under section 58 of the Bankruptcy Act and become divisible among your child's creditors.

We can do all this during the Stage 4 Lock-down if you and your children have access to a mobile phone and e-mail.

Land transfer duty

If you are transferring one of your properties to your son or daughter, the transfer is subject to land transfer duty on the actual market value of the property at the date of the transfer, which they will have to pay.  You can calculate the land transfer duty and the transfer registration fee, if you wish.

Duty concession for principal place of residence and the first home owner

In most circumstances, your children (and their spouses or domestic partners) will not be eligible for the principal place of residence or the first home owner concession.  They usually end up paying duty on the market value of the property without any concession.

Your children will not understand when we advise them that they are not eligible for the first home owner concession or even the principal place of residence concession.  It just makes no sense.  After all, they intend living in the property as their principal place of residence or it will be their first home.  This is because of the 
words "for valuable consideration" in sections 57I and 61 of the Duties Act.  These words have a technical meaning.  They mean that your child must pay you the full market value for the property.  Our advice has been confirmed by the decision of the Tribunal on 29 June 2020 in Pollard v Commissioner of State Revenue [2020] VCAT 716.  In that case, the  young couple, who were paying the parents of one of the couple for the property, applied for a duty concession.  The State Revenue Office assessed duty on the transfer at the full market value of the property without any concession.  The couple objected.  The State Revenue Office refused to budge.  The couple then applied to the Tribunal.  The Tribunal held that they did not satisfy those words in the Duties Act.  The couple ended up paying land transfer duty on the market value of the property.

Capital gains tax

If you transfer one of your properties to your son or daughter, the transfer will also trigger a CGT event (unless it is your main residence), which means you must pay actual capital gains tax on the market value of the property less the cost base.