We helped our daughter buy a house. Will we have to pay CGT?
Our daughter purchased a property for $750,000 in 2014. We financed $350,000 and added it to the title as collateral. The property is currently valued at $2 million.
We want to remove our names from the title deed by putting the entire debt on our daughter. Since this is considered a change of ownership, capital gains tax and stamp duty will apply. Is there a way to gift our share and avoid these consequences?
Thanks for your question. It’s common these days for parents to help their children get into the property market, and a structure similar to the one you and your daughter are undertaking is being considered by many, so it’s great to have a picture of how this will play out in the long run.
I don’t know of any way to get around capital gains tax liability here. As you point out, even though this is a gift, it is still classified as being disposed of at market value. Although your daughter’s share is tax-free on capital gains as her primary residence, your share is not.
Perhaps in your will you can leave your share of the property to your daughter. This way CGT is deferred at least until it is finally sold. Talk to your accountant and lawyer.
I have been renting in Sydney for many years. I have a good income and plan to continue working for at least three years, probably longer. I have $800,000 in stock, $3 million in the bank, and $3.2 million in retirement. Should I buy a house now, given that I use Super to the maximum?
Purchasing a home based entirely on the numbers presented here may seem logical. You have a large amount of money in the bank that probably hasn’t even kept up with inflation.
If you invest this money in a house, its value will increase over time and of course you will save money on rent. As an added bonus, your home is tax-free on capital gains.
I’d like to understand why you haven’t already purchased a home, given your balance sheet. Perhaps your priority has been flexibility, and if this remains particularly important to you, this consideration may outweigh any financial justification.
If you choose not to purchase a home, I strongly recommend that you consider making sure some of the funds currently in the bank are invested more productively.
I’m 60, semi-retired, and still have $1 million in savings mode. I’m considering moving this into retirement for tax-free earnings and opening a separate savings account with another provider for diversification and ongoing contributions.
I will contribute to the new fund until my combined super balance reaches the transfer balance limit. Is this a legitimate and effective strategy?
This approach is applicable provided you meet the parole requirement. I would prefer to keep the minimum balance in your existing savings account rather than opening a new savings account with a different provider. The major super funds all invest in the same place, so the diversification benefits of having different providers do not particularly apply.
It is important to be clear about calculating the transfer balance ceiling. Given that the current cap is $2 million, if you shift $1 million into retirement you will have exhausted 50 percent of your cap. The cap will increase with inflation in future years, and the gap you have will always be 50 percent of the cap value in that year.
Paul Benson is a Certified Financial Planner. Guidance Financial Services. He is hosting Financial Autonomy podcast. Questions: paul@financialautonomy.com.au
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Paul Benson is a Certified Financial Planner and host of the Financial Autonomy podcast.
