Tax traps for parents in selling to their youngsters

Tax accounting firm, H&R Block, has warned parents to be careful when helping their children into their 1st house, particularly if it entails the sale of an investment. According to the firm, the mixture of increasing home prices and Boomers starting to reach retirement and possibly wanting to free of charge up some cash has resulted in a lot more parents promoting their own houses or investment properties to their children.

“Many parents are resorting to promoting their investment properties as a signifies to helping get their children into their 1st home,” 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 principal trap, according to H&R Block, is when an investment house is sold at a beneath-marketplace worth. This can outcome in a reduced capital gains tax (CGT) payment which, if found by the Australian Taxation Office (which calculates CGT on the marketplace worth of the property – not the sale price tag) could outcome in an added tax bill as properly as a penalty of up to an further 100% of the tax payable.

If the house sold is the parents’ principal place of residence this is not a problem, of course, as the principal spot of residence is exempt from Capital Gains Tax.

It’s worth noting that stamp duty is also charged on the marketplace worth of the investment property, not the sale value.

In other words, an try by parents to saver their youngsters a bit of money could backfire considerably if an investment home is involved.

Tax traps for parents in selling to their youngsters