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Properties which are classified as working commercial farms may be eligible for a rebate on their 2023-2024 farm rates. Rebates and rates may differ depending… from Local council farm rate concessions
Whether it’s the family home or an investment property, real estate is typically a significant asset of your family and should be given careful consideration – especially when transferring, gifting or changing names on the title.
Here are our top five things to take into account when considering family and real estate.
1. Get the ownership right
Getting the ownership correct at the start of the agreement will prevent any issues when the time comes to change that ownership.
There are two types of ownership; joint tenants and tenants in common.
Due to their similar sounding, the terms may be overlooked, but there is an important distinction that provides different legal, financial and tax outcomes. The detail may not matter at all, or it may matter a lot.
Broadly, joint tenants equally own a property (this is often the case for a husband and wife). When one joint tenant dies, their interest automatically passes to the surviving joint tenant(s). This means it is not available to be distributed in accordance with a Will.
Whereas tenants in-common have a defined interest that they can dispose of as they wish and that can be specifically bequeathed in accordance with a Will (this may be more likely for owners of a holiday house).
As with most decisions, there are pros and cons to each so we recommend speaking to us before anything is signed.
2. Beware of gifting
Gifting of real estate is an extremely generous means of showing love, but there may be hidden costs.
Transfers of property have tax implications as they are deemed to be at market value even if no cash is received.
This can create CGT implications and also trigger stamp duty to be payable. In the case of pensioners, the transfer value is likely to be taken up by Centrelink as part of the assets test impacting on his/her pension.
Could a better outcome be achieved through estate planning? Talk to us to find out.
3. Know your rent
Mates’ rates for family isn’t always the best bet. Similar to gifting, renting to family members (for tax purposes) generally needs to be at market value, otherwise the rental deductions may be limited to make up for the difference.
Domestic arrangements such as receiving payments from a family member for board are considered to be domestic arrangements and are not rental income, you also can’t claim property tax deductions.
4. Be clear on the details
No family is the same, so no family agreement is going to be the same.
The ownership particulars do not stop at the “who owns what” level, but quite often extend to agreements on sharing ownership costs, property usage (e.g. holiday houses), servicing loans and paying rent.
• Ownership costs – will ownership costs be split based on ownership percentage, property usage or some other means? How will this be calculated?
• Property usage – who will make use of a shared holiday house and when? Can other family and friends use the house?
• Paying rent – if friends or family use the house will rent be charged, and if so, how much?
• Servicing loans – what will happen if one tenant is unable to service their share of the loan?
What is important is discussing and agreeing on all areas and ensuring that the agreements are in writing.
5. Have an exit strategy
An exit strategy is a plan to ensure your investment is as beneficial to you as possible.
Some reasons to have an exit strategy include:
– Loan becomes unserviceable
– Personal issues
When investing with family it is important to have a plan to help set expectations of potential sale events upfront and thereby reduce the chance of ‘panic selling’.
We have extensive experience in providing advice to families on property and its possible implications. Please contact us if you would like to know more.