A friend just asked me for some advice – 4 years ago he purchased a property in partnership with his brother. At the time his brother qualified for the FHOG so they put the property in his name, but both names went on the mortgage. Now the property has done well and gone up in value, but my friend is hamstrung because he can’t borrow anything for further investing as he has a mortgage in his name but no asset as far as teh banks are concerned. So a parting of the ways needs to happen.
Does anyone know the stamp duty implications of either (a) him being put on the title to the house or (b) him effectively purchasing the house from his brother and owning it outright?
(please – I don’t want any commentary on the difficulties the strategy got them into, I just want commentary on the smoothest way out – apart from sellign the lot and splitting the proceeds, that is)
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We all need somewhere to live – but do we all need a CBD apartment?Hello brc
I don’t know the answer to your question but I think there may also be CGT implications here.
I assume that they where thinking of doing the transfer/sale at the original price? but I am not sure if the ATO will wear that. Also something to check maybe.
Cheers
ElkaStamp duty will be unavoidable in most states that I’m aware of.
CGT maybe exempt for the brother if it’s his PPR or has been.
Of cause your right trajik. Missed the FHOG thing sorry.
Silly me. [blush2]
ElkaIt could be a little tricky it maybe worth speaking with a solictor. As if do not exit it correctly may dig a deeper whole.
http://www.osr.qld.gov.au/fhog/disqualifying.shtml
If they are not careful the FHOG I think can be taken back not to mention the legal implications.Wayne
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Refinace, Loan Consolidation, Owner Occupied or Investment Finance. Free Service we come to you!after the droughts my grandpa (farmer) had to do something similar to sell a certian amount of land to be able to claim centerlink. I am pretty sure he sold it to his son for $1. try CGT on that!!
Thanks for the responses guys.
It is a PPOR for both of them – neither have any other property. I guess the ‘price’ of the transfer would be whatever it needs to be, but both of them definitely want their share of the capital gain. CGT doens’t come into it as it is PPOR for them both.
The issue is really the stamp duty, which is calculated on a transfer price. I spoke to an accountant about it yesterday, he said there is avenues to claim that the original contract should have had both of them, but as others have poitned out, that could just dig a deeper hole and create a worse mess. Not to mention having to hand back the FHOG which got used to pay the stamp duty at the time of purchase.
The only strategy I could come up with was for the brother with the title to sell to the one that didn’t have it, but keep the purchase price the original purchase price. This woudl attract 50% less Stamp Duty because it’s basically half what the place is worth now. Because the mortgage was arranged on this purchase price, the banks not goign to worry because it is still financing 80% of that purchase price (less,actually, because the loan has been paid down) Then the brother who was getting out would be fixed up for his half of the capital gain through refinancing with a new mortgage a month or so after the deal has gone through. Because there are no CGT implications, I can’t see how the OSR would be concerned if someone gives $100,000 to his brother. I mean, they could just be good siblings, right?
I’m happy to take any commentary on my strategy.
This whole episode should warn people about properly structuring deals and thinking about the long term consequences of fiddling for short term tax or other benefits. That original $7k in FHOG looks like costing them $20k in stamp duty, and a whole heap of unwanted aggravation. It’s a good thing that the whole thing is still on good terms – imagine if they as joint investment partners had had a falling out. [blink] This isn’t the first time I’ve heard of brothers going into property together and the whole thing ending in tears. It’s great to do joint investing with family members so that two people can get a start in property, but I think a written plan to get out before you get in is the first thing that should be signed before the contract.
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We all need somewhere to live – but do we all need a CBD apartment?Hi Brc
Stamp duty is calculated on transfer price, but it must be paid at market rate. They may not pick it up, but if they do an audit, then you may need to justify your figure. Many often get a valuation for this purpose.
Gifting shouldn’t be a problem, but if the property is going to be rented out, then there will be problems with claiming the interest on this amount.Terryw
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Assuming that the rules are the same in each state the State Revenue Dept don’t care what you pay for the 50% share. A valuation must be completed by the VGO’s office which can take up to 4 weeks to be completed but if you are in Perth you can have a valuation carried out by a licensed valuer and if the val comes in less than $400K the SRD will stamp it over the counter. You will have to pay for example
Property Val $400,000
50% share $200,000
Stamp duty due on the $200,000
Due (perth s/duty payable) $6,200.00Nat
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