Tax accounting firm, H&R Block, has warned parents to be cautious when assisting their kids into their 1st home, especially if it entails the sale of an investment. According to the firm, the combination of increasing residence prices and Boomers starting to reach retirement and possibly wanting to free up some cash has resulted in a lot more parents promoting their own residences or investment properties to their kids.
“Many parents are resorting to promoting their investment properties as a indicates to assisting get their children into their first property,” says Regional Director of H&R Block, Mr. Frank Brass. “But there are hidden traps that they need to have to be aware of.”
The major trap, according to H&R Block, is when an investment home is sold at a below-market place worth. This can outcome in a reduce capital gains tax (CGT) payment which, if discovered by the Australian Taxation Workplace (which calculates CGT on the market place value of the property – not the sale price) could outcome in an additional tax bill as properly as a penalty of up to an further 100% of the tax payable.
If the home sold is the parents’ principal location of residence this is not a issue, of course, as the principal spot of residence is exempt from Capital Gains Tax.
It is worth noting that stamp duty is also charged on the market place value of the investment property, not the sale price.
In other words, an try by parents to saver their kids a bit of cash could backfire substantially if an investment house is involved.
Tax traps for parents in promoting to their children
