All Topics / Legal & Accounting / Selling an IP to a family member

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  • Profile photo of shangrila00shangrila00
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    @shangrila00
    Join Date: 2009
    Post Count: 65

    Hello,

    Looking to gain some more insight into this and get advice from people more experienced…

    If an IP is sold to a family member (not at arm's length transaction) for a price significantly below the market price, what would be the tax ramifications related to CGT after the sale? I know it's not illegal to sell a property to a family member, nor if it's below its market price, but will the ATO view such a transaction as a way of trying to reduce one's CGT liability? I remember years ago a property could still be "sold" for the symbolic value of, say, $5, and not have any tax issues for the vendor, but that was almost 15 years ago now. Things could've changed…

    Thanks all!

    Profile photo of god_of_moneygod_of_money
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    @god_of_money
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    As long as you can answer the ATO when audited, you can sell it for 'symbolic' A$1.00

    Profile photo of shangrila00shangrila00
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    @shangrila00
    Join Date: 2009
    Post Count: 65

    god_of_money – thanks for the reply, but what exactly do you mean by "answer the ATO"? As in why I sold it for the amount I did? Surely an IP owner has the right to even give away his/her property, if they choose to do so, and not have to explain themselves as to why they did it? Maybe I'm getting too far ahead and misinterpreting your comment…

    Profile photo of crjcrj
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    @crj
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    CGT calculations are based on market value of the property.  If you can convince the ATO that if your relation hadn't been willing to buy it for $5, you would have willing sold it to a nonrelation for $5, no problems.

    Profile photo of Dan42Dan42
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    @dan42
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    The ATO will use the market value substitution rule for the calculation of CGT.

    In other words, if you have sold it under market value, the ATO and CGT rules require you to pay CGT as if you havesold it for market value.

    Profile photo of TerrywTerryw
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    @terryw
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    s 116-30 ITAA 1997
    http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s116.30.html

    Will be similar for stamp duty too.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of shangrila00shangrila00
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    @shangrila00
    Join Date: 2009
    Post Count: 65

    Thanks for all your responses!

    If the property was sold at a loss, though, and the only "gain", so to speak, was the $5 sale price, how can the vendor claim to have the money ready for CGT purposes?

    Or would the cheaper option be to just transfer the property into a relative's name, not sell it?

    Profile photo of TerrywTerryw
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    @terryw
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    Transfer = sell

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of shangrila00shangrila00
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    @shangrila00
    Join Date: 2009
    Post Count: 65

    Simple. Thanks.

    And if it's given away? (Makes for a great birthday present!)

    Profile photo of TerrywTerryw
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    @terryw
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    Gifting = same as selling for GCT and stamp duty

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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