Related party transfers are not that straightforward as other property transfer. You need to consider various other ‘legal factors’ as well. That is why for a related property transfer, it is always recommended that you have a professional conveyancer by your side for best advice and guidance.
Here are some of the legal considerations which you may need to go through:
- Valuation of the Property
In many cases, properties involved in related party transfers are not sold at market value. Instead, the transaction could be a gift or made at a discounted price. In these cases, tax implications may occur.
For example, in Australia, the Australian Taxation Office (ATO) may look at the transaction to make sure the value is in line with what would be expected in an open market transaction.
- Capital Gains Tax (CGT)
When a related party transfers their property, Capital Gains Tax may still apply. It is applicable even if the transfer is made at below market value. The ATO often evaluates these transfers for CGT purposes to make sure that all the tax obligations are fully met. So, it is very crucial to have a talk with professional solicitors like KP Conveyancing on CGT before you go ahead with the transfer.
- Stamp Duty
A related party transfer may also incur stamp duty tax ranging from 3-5% of the property value. It is a state government tax levied on property transactions. In some cases, concessions or exemptions can be achieved, but these can vary based on the relationship between the parties and the nature or mode of the transfer.
For example, in some jurisdictions, stamp duty exemptions can be made for transfers between spouses or parents and children.
- Special Legal Rules
In some situations, there are special rules that govern related party transfers. For example, in the case of property transfer between a company and its shareholders or related entities, the transaction may fall under specific corporate tax rules.
These rules can affect how the transfer is managed and may need additional documentation.
