Related Party Property Transfers in Queensland: Duty, CGT and Valuations

In this blog we discuss everything you need to know about RELATED PARTY TRANSFERS. This is part one of a two part series.

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Hi everybody – George Sourris, Empire Legal.

Today’s topic: Related Party Transfer – Part One. 

So what is a related party transfer?

Let’s start with the definition. So when a property’s changing hands, we’re looking for either the higher of:

1. the sale price; OR

2. the market value of the unencumbered property (what it would sell for on the open market with no mortgage).

The Office of State Revenue will collect the transfer duty payable at the true market value. So basically – there will be no duty discounts just because you’re related to somebody when a property is being transferred.

Example:

Let’s do a real life example. My parents have a $1,000,000 investment property on the Gold Coast, and because they’re such wonderful people, they’re going to let me buy it for $850,000 – so $150,000 discount. So, good news, I’m getting the property for $150,000 off.

However, if we look at that definition we just spoke about, the sale price is actually lower than the true market value. The true market value is $1,000,000. So the Office of State Revenue shouldn’t miss out on the duty payable, the true duty, which is the transfer duty on $1,000,000, not $850,000. Make sense?

The transaction with the related parties is not at arm’s length because we are involving some parties that are related by blood, marriage, or in a commercial setting. They know each other.

If you want to dig a bit deeper into it, this is all governed by a Public Ruling that was released by the Office of State Revenue. Now, a Public Ruling is effectively something that the Commissioner puts out to the world. You can see it on the Office of State Revenue’s website. The link is here. The Public Ruling overrides everything prior to, and it’s effectively the source of truth of how we assess these sorts of transactions.

Definition of a related party:

The definition lives in Section 61 of the Duties Act, for all of those who like to read the Duties Act in their spare time. There are three different sections.

We’ve got an individual, so we’re talking somebody that is related – for example, siblings, spouse, parents, etc.

Then we’ve got companies. So, shareholders – anyone where there’s a relationship there between business partners or family members within the corporation, that could be defined as related.

And trusts – we are talking about companies and trusts – if the beneficiary has a relationship with a family member there, we’ve got a related party.

But you can read up on the exact definitions by googling it or looking up the Duties Act.

Requirements to self-assess:

There are two ways for us as self assessors on behalf of the Office of State Revenue. As the solicitors, we are obliged to either get: a registered valuation  OR three comparative sales.

Now the registered valuation must be from a registered valuer. Alternatively, we can ask a real estate agent to get three comparative sales arranged in the area. They have to be true comparatives, and we’re going to be looking at the highest of those three values when we do our transfer duty assessment.

For both options, the evidence must be held for five years. 

On this $1,000,000 example, if it was $950,000, $980,000 and $1.2 million as comparatives, we are paying stamps on $1.2 million (the highest of the three comparatives).

Also, on the comparative sales report must be the real property description – so the lot and plan, the residential address, and any improvements made to the property.

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What is a related party property transfer?

This article is the background. If you want the practical version, see our related party transfers service page.

A related party transfer is a transfer of property between people or entities with an existing relationship rather than at arm’s length on the open market. Parent to child, between spouses, into or out of a family trust, or between a person and their own company.

The transaction is legally the same as any other transfer of land. What changes is that nobody set the price by exposing the property to the market, so the Revenue Office and the ATO both apply their own tests.

Do you pay stamp duty on a related party transfer in Queensland?

Usually yes, and this is the assumption that costs people most. Duty is assessed on the market value of the interest transferred, not on what was paid. Transferring a half share of a $900,000 property to a family member for nothing is assessed against $450,000.

Concessions and exemptions exist for particular situations, including some transfers of a home between spouses, but they have conditions and they are not automatic. Confirm your position before you sign, not after the transfer is drawn.

Do you need a valuation for a related party transfer?

Yes, in practice. Because the parties are not at arm’s length, the Queensland Revenue Office will want evidence of market value, and a council rates notice is not it. The unimproved capital value on a rates notice is a statutory land valuation, not a market valuation of the property.

Our guide to valuations for transfer duty covers when one is required and who pays.

What about capital gains tax on a related party transfer?

A transfer between related parties is generally treated for CGT purposes as happening at market value regardless of what was actually paid. So a parent transferring an investment property to a child for nothing can trigger a real capital gains liability with no cash coming in to pay it.

Not sure what the bill looks like? Use our capital gains tax calculator for property to get an estimate before you commit.

Duty and CGT are separate taxes with separate rules. A transfer that looks free can be expensive on both.

Can you transfer property to a family member for $1?

You can document it that way, and it will not achieve what people think. Duty is assessed on market value, CGT is generally calculated on market value, and the $1 changes neither. All it does is create a record that the transfer was not at arm’s length.

What else should you sort out before a related party transfer?

• Lender consent if there is a mortgage. You cannot transfer an interest in a mortgaged property without the bank agreeing.
• Independent legal advice for each party. A transfer where one side had no independent advice is far easier to challenge later.
• Estate planning. Decide joint tenants or tenants in common deliberately, and update the wills at the same time.
• Land tax and main residence status, which can both change with the ownership structure.

This is Queensland specific. If the property is in another state, the duty rules, concessions and thresholds are different and the figures here do not apply.

Doing one of these? Our related party transfers service page sets out the duty, valuation, CGT and ATO clearance certificate requirements in full, and what Empire Legal handles on a related party file. Call 07 3088 7675 before you sign anything.