legal advice before trying this.
want to help their elderly parent(s) purchase property. This might be the
parents moving to a more suitable property or the parents becoming owners
instead of renting.
parents into a property can also help the children too, because they may
potentially inherit the property at a later date and there can be great tax
concessional along the way.
basically 3 main ways an adult child could help a parent into a property:
b. loan –
at interest or interest free
purchasing part of the property.
various estate planning consequences to each of these and also practical
- if the parents own the home it might be 100% CGT and land tax exempt, if the child owns part it may not be completely exempt.
- If one child made a gift and they have siblings and the parents die before they gift giver then the other siblings may also benefit from the gift.
- if it was a gift and you died the next day after making the gift your family would potentially miss out
- If it was an interest free loan and nothing done for 6 years it could become unenforceable
- If they have incorporated a testamentary discretionary trust in their will and it the gift all came back to ‘you’ this could provide tax free income to your minor children for years to come.
- If you gift it and parent A dies first parent B might remarry…
of how It could work
Lisa are adults with one parent left – Homer. Homer lost his house years ago
and is renting. Bart and Lisa each have their own homes fully paid off and some
cash in the offset accounts to their separately owned investment properties.
a property with development potential. It is just around the corner from where
Homer lives in his rented flat. Bart is going to purchase the property and is
deciding what entity to put it in when he has an idea.
property purchase price is $500,000. He has enough cash to pay for it so he
could just buy it outright, but since his dad is not getting a main residence
exemption for CGT Bart talks to Homer, his dad, and they decide to buy it in
the contract and Bart lends him the 10% deposit with a promise to lend him the
rest for settlement.
realises that if Homer dies his sister Lisa will end up with half the property.
So to make things fairer he talks to Lisa and gives her 2 options
- Lisa put
in 50% of the purchase price at settlement, or
leaves the whole property to Bart and Lisa agrees not to challenge this if it
Lisa decide to ‘go 50/50’ and each lend Homer $250,000 and Homer settles on the
property. It is a 5 year interest free loan which they intend to renew each 5
arranges various approvals and the property is now worth $1mil when Homer dies
4 years later.
terms of the will of Homer 50% of his assets would go into each of 2
testamentary discretionary trusts with one controlled by Bart and one
controlled by Lisa.
now have 50% of an additional property which would be could be sold tax free or
held onto with a cost base of $1mil. There has been no land tax along the way
because this was Homer’s main residence and they have each gained further tax
deductions by using cash in their offset accounts.
any income generated from the property from that point could be streamed to
their minor children, as beneficiaries of the trust, with each child getting around
$20,000 without having to pay tax.
Homer’s death they also forgave the loans they made him – so this meant that an
extra $500,000 was driven into the testamentary discretionary trust so they
could generate even more tax free income.
Legal Tip 208: Helping an Elderly Parent Buy a new property https://www.propertychat.com.au/community/threads/legal-tip-208-helping-an-elderly-parent-buy-a-new-property.39377/
Written by Terryw Lawyer at www.structuringlawyers.com.au