Tax when helping kids
Question from michelle updated on 5th February 2018:
I am trying to help my children out with buying houses in the future. If I buy a property and then in a couple of years’ time sell it to my daughter with no profit made will I have to pay capital gains or any form of tax upon selling it to her? Will it make a difference if she is renting it off me until she can afford to buy it or if it is tenanted by other renters?
Our expert Mark Withers responded:
Yes, there is the potential for income tax in this situation under the new two year bright line test for residential land. Section GC1 of the Income Tax Act provides that the sale of trading stock for below market value is deemed to occur at market value. The definition of trading stock in YA1 includes "land whose disposal would produce income under sections CB6A - CB15". These are the sections which relate to land. So the sale to your daughter would be deemed to occur at market value.
If this happened within two years of acquisition any profit would be taxable under the bright line test. It might be better to assist your daughter by lending her money instead. This would allow her to own the property subject to her debt to you. She would generate the gain and probably be exempt from the bright-line test as she would be entitled to the owners’ exemption if she actually lives in it.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.