Transfer of Ownership – non resident tax purposes

Question

Parents would like to transfer the ownership of vacant residential property (with house) to daughter (above 18 years old).
The Parents are non residents for tax purposes (do not stay more than 180 days in Australia a year)
What tax implications are likely to be faced & any strategy to minimize any potential tax implications.

Facts:
Property purchased: Dec 2013
Property Never lived in by owners (parents).
Property Never rented out by owner (parents).
Property was not a new building premises when bought.
No mortgage on property
Daugther not planning to move into property.

Kind Regards

Answer

If the daughter is a resident of Australia the transfer is a good idea going forward. As non residents the parents are not entitled to the 50% CGT discount. Unfortunately the transfer to the daughter will be deemed for CGT purposes to be at market value so tax will have to be paid on any capital gain to date and there will probably be stamp duty costs on the transfer. On the up side the daughter’s cost base will start with the current market value.
The parent’s cost base will start with the price they paid in December 2013 plus purchasing costs, improvements and any costs associated with selling. The difference between this and the market value on the date of transfer is the capital gain or loss. If there is a capital gain they are allowed to use section 110-25(4) to reduce the gain by any costs of holding the property, that have not been claimed as a tax deduction. These costs can’t be used to create a capital loss but they can go as far as reducing the gain to zero if possible. Holding costs include and are not limited by interest, rates, insurance, repairs and maintenance. For example, cleaning materials would be maintenance as would lawn mower fuel. Think about light globes. It is really just limited by the records available. Considering the short period of ownership maybe this is enough to cover off the capital gain. Probably not if it is in Sydney or Melbourne.
Probably the sooner the property is transferred to the daughter the better but other considerations are whether they are ever likely to want to sell the property in their life time and what their life expectancy is. The CGT and stamp duty costs need to be weighed up against the potential to transfer the property to the daughter upon their death with no CGT trigger though if the daughter sells she will have to pay the tax on the capital gain made during their period of ownership and hers. If the daughter intends to keep the property and even pass it down to her family then no tax will be collected on the property anyway so consider whether it would be worth giving the ATO some now or not.

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