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!
As long as you can answer the ATO when audited, you can sell it for 'symbolic' A$1.00
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…
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.
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.
s 116-30 ITAA 1997
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s116.30.htmlWill be similar for stamp duty too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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?
Transfer = sell
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Simple. Thanks.
And if it's given away? (Makes for a great birthday present!)
Gifting = same as selling for GCT and stamp duty
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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